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Firm Volatility in Granual Networks

Author

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  • Van Nieuwerburgh, Stijn
  • Lustig, Hanno
  • Kelly, Bryan
  • Herskovic, Bernard

Abstract

Firm volatilities co-move strongly over time, and their common factor is the dispersion of the economy-wide firm size distribution. In the cross section, smaller firms and firms with a more concentrated customer base display higher volatility. Network effects are essential to explaining the joint evolution of the empirical firm size and firm volatility distributions. We propose and estimate a simple network model of firm volatility in which shocks to customers influence their suppliers. Larger suppliers have more customers and the strength of a customer-supplier link depends on the size of the customer. The model produces distributions of firm volatility, size, and customer concentration that are consistent with the data.

Suggested Citation

  • Van Nieuwerburgh, Stijn & Lustig, Hanno & Kelly, Bryan & Herskovic, Bernard, 2017. "Firm Volatility in Granual Networks," CEPR Discussion Papers 12284, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:12284
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    More about this item

    Keywords

    Firm volatility; Networks; Firm size distribution; Aggregate volatility; Granularity;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • G1 - Financial Economics - - General Financial Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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