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Firms, Destinations, and Aggregate Fluctuations

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  • di Giovanni, Julian
  • Levchenko, Andrei A.
  • Méjean, Isabelle

Abstract

This paper provides a forensic account of the role of individual firms in generating aggregate fluctuations using data covering the universe of French firms for the period 1990–2007. We derive a theoretically-founded set of estimating equations that decompose firms’ annual sales growth rate into different components. The firm-specific component contributes substantially to aggregate sales volatility, mattering about as much as the components capturing shocks that are common across firms within a sector or country. We then decompose the firm-specific component to provide evidence on two mechanisms that generate aggregate fluctuations from microeconomic shocks: (i) when the firm size distribution is fat-tailed, idiosyncratic shocks to large firms contribute to aggregate fluctuations (Gabaix, 2011), and (ii) sizable aggregate volatility can arise from idiosyncratic shocks due to input-output linkages across the economy (Acemoglu et al., 2012). We find that firm linkages are approximately twice as important as granularity in driving aggregate fluctuations.

Suggested Citation

  • di Giovanni, Julian & Levchenko, Andrei A. & Méjean, Isabelle, 2012. "Firms, Destinations, and Aggregate Fluctuations," CEPR Discussion Papers 9168, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:9168
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    References listed on IDEAS

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    More about this item

    Keywords

    Aggregate Volatility; Firm-Level Shocks; Large Firms; Linkages;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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