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Aggregate fluctuations and the cross-sectional dynamics of firm growth


  • Sean HOLLY
  • Emiliano SANTORO


This paper argues that important insights into the business cycle can be obtained by exploring the micro-structure of macroeconomic fluctuations. We fit firm-level growth data with the Asymmetric Exponential Power density, which accounts for asymmetric dispersion and kurtosis on either side of the modal rate. Three novel results are reported. First, firms in the left side of the distribution, that is firms that are growing more slowly or declining, are typically more responsive to aggregate shocks than those in the right side of the distribution. Second, trending behavior in the volatility of firm growth is predominantly driven by increasing dispersion in the growth of highly performing .rms. Last, we deliver evidence in support of the view that shifts in the probability mass on either side of the mode may act as important propagators of business fluctuations. The analysis points to .financial frictions as one of the mechanisms capable of inducing non-linear micro adjustment consistent with both aggregate and cross-sectional dynamics.

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  • Sean HOLLY & Ivan PETRELLA & Emiliano SANTORO, 2011. "Aggregate fluctuations and the cross-sectional dynamics of firm growth," Working Papers Department of Economics ces11.06, KU Leuven, Faculty of Economics and Business, Department of Economics.
  • Handle: RePEc:ete:ceswps:ces11.06

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    References listed on IDEAS

    1. Miyagiwa, Kaz & Ohno, Yuka, 2007. "Dumping as a signal of innovation," Journal of International Economics, Elsevier, vol. 71(1), pages 221-240, March.
    2. Dobrin R. Kolev & Thomas J. Prusa, 2002. "Dumping and Double Crossing: The (In)Effectiveness of Cost-Based Trade Policy under Incomplete Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(3), pages 895-918, August.
    3. Xenia Matschke & Anja Schöttner, 2013. "Antidumping as Strategic Trade Policy under Asymmetric Information," Southern Economic Journal, Southern Economic Association, vol. 80(1), pages 81-105, July.
    4. Krishna, Vijay, 2009. "Auction Theory," Elsevier Monographs, Elsevier, edition 2, number 9780123745071.
    5. Henrik Horn & Giovanni Maggi & Robert W. Staiger, 2010. "Trade Agreements as Endogenously Incomplete Contracts," American Economic Review, American Economic Association, vol. 100(1), pages 394-419, March.
    6. Staiger, Robert W. & Wolak, Frank A., 1992. "The effect of domestic antidumping law in the presence of foreign monopoly," Journal of International Economics, Elsevier, vol. 32(3-4), pages 265-287, May.
    7. Chisik, Richard, 2003. "Gradualism in free trade agreements: a theoretical justification," Journal of International Economics, Elsevier, vol. 59(2), pages 367-397, March.
    8. Ronald D. Fischer & Thomas J. Prusa, 2003. "WTO Exceptions as Insurance," Review of International Economics, Wiley Blackwell, vol. 11(5), pages 745-757, November.
    9. Anderson, James E, 1992. "Domino Dumping, I: Competitive Exporters," American Economic Review, American Economic Association, vol. 82(1), pages 65-83, March.
    10. Choi, E. Kwan & Harrigan, James, 2003. "Handbook of International Trade," Staff General Research Papers Archive 11375, Iowa State University, Department of Economics.
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    Cited by:

    1. Olubunmi Ipinnaiye & Declan Dineen & Helena Lenihan, 2017. "Drivers of SME performance: a holistic and multivariate approach," Small Business Economics, Springer, vol. 48(4), pages 883-911, April.
    2. Halvarsson, Daniel, 2013. "Identifying High-Growth Firms," Ratio Working Papers 215, The Ratio Institute.
    3. Asquith, William H., 2014. "Parameter estimation for the 4-parameter Asymmetric Exponential Power distribution by the method of L-moments using R," Computational Statistics & Data Analysis, Elsevier, vol. 71(C), pages 955-970.
    4. Andrew Harvey & Rutger-Jan Lange, 2015. "Volatility Modeling with a Generalized t-distribution," Cambridge Working Papers in Economics 1517, Faculty of Economics, University of Cambridge.
    5. repec:eso:journl:v:47:y:2016:i:2:p:213-245 is not listed on IDEAS
    6. Roberta Distante & Ivan Petrella & Emiliano Santoro, 2013. "Asymmetry Reversals and the Business Cycle," Working Papers 2013.54, Fondazione Eni Enrico Mattei.
    7. Åstebro, Thomas & Tåg, Joacim, 2015. "Jobs Incorporated: Incorporation Status and Job Creation," Working Paper Series 1059, Research Institute of Industrial Economics.
    8. Giulio Bottazzi & Le Li & Angelo Secchi, 2017. "Aggregate fluctuations and the distribution of firm growth rates," LEM Papers Series 2017/24, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    9. repec:rom:mancon:v:11:y:2017:i:1:p:617-632 is not listed on IDEAS
    10. Distante, Roberta & Petrella, Ivan & Santoro, Emiliano, 2017. "Gibrat's Law and Quantile Regressions: an Application to Firm Growth," EMF Research Papers 16, Economic Modelling and Forecasting Group.

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