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Granularity of the business cycle fluctuations: The Spanish case

Listed author(s):
  • Omar Blanco

    ()

    (Department of Economics, Universitat Jaume I, Castellón, Spain)

  • Simone Alfarano

    ()

    (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain)

Following the approach proposed by Gabaix (2011), this paper aims to verify the existence of granularity in the Spanish business cycle fluctuations. A granular firm is characterized by the fact that its idiosyncratic shocks have a significant impact on GDP growth fluctuations. Despite the fact that granular firms constitute just a marginal fraction of the total number of firms, they account for a significant part of business cycle fluctuations. Our analysis shows that half of the GDP growth fluctuations of the Spanish economy can be linked to the idiosyncratic shocks of the largest 100 Spanish firms. Our work contributes to strengthening the empirical relevance of the granular hypothesis. The results show that the Spanish economy, as happens in the US economy, may be represented by a large number of small and medium enterprises whose individual evolution has no impact at the aggregate level, and a small number of large firms whose fluctuations contribute significantly to the variability of the Spanish business cycle.

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File URL: http://www.doctreballeco.uji.es/wpficheros/Blanco_and_Alfarano_25_2016.pdf
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Paper provided by Economics Department, Universitat Jaume I, Castellón (Spain) in its series Working Papers with number 2016/25.

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Length: 21 pages
Date of creation: 2016
Handle: RePEc:jau:wpaper:2016/25
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Web page: http://www.doctreballeco.uji.es/
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  1. Jesús Fernández-Villaverde & Luis Garicano & Tano Santos, 2013. "Political Credit Cycles: The Case of the Eurozone," Journal of Economic Perspectives, American Economic Association, vol. 27(3), pages 145-166, Summer.
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  10. Blank, Sven & Buch, Claudia M. & Neugebauer, Katja, 2009. "Shocks at large banks and banking sector distress: The Banking Granular Residual," Journal of Financial Stability, Elsevier, vol. 5(4), pages 353-373, December.
  11. Vasco Carvalho & Basile Grassi, 2015. "Large firm dynamics and the business cycle," Economics Working Papers 1481, Department of Economics and Business, Universitat Pompeu Fabra.
  12. Charles R. Hulten, 1978. "Growth Accounting with Intermediate Inputs," Review of Economic Studies, Oxford University Press, vol. 45(3), pages 511-518.
  13. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-334, June.
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  15. Julian di Giovanni & Andrei A. Levchenko, 2012. "Country Size, International Trade, and Aggregate Fluctuations in Granular Economies," Journal of Political Economy, University of Chicago Press, vol. 120(6), pages 1083-1132.
  16. Lucas, Robert E, Jr, 1975. "An Equilibrium Model of the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1113-1144, December.
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