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Firms, Destinations, and Aggregate Fluctuations

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

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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9168.

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Date of creation: Oct 2012
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Handle: RePEc:cpr:ceprdp:9168
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  1. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
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  13. CASTRO, Rui & CLEMENTI, Gian Luca & LEE, Yoonsoo, 2010. "Cross-Sectoral Variation in Firm-Level Idiosyncratic Risk," Cahiers de recherche 15-2010, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
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  27. Sophie Osotimehin, 2013. "Aggregate productivity and the allocation of resources over the business cycle," Virginia Economics Online Papers 404, University of Virginia, Department of Economics.
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