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Heterogeneity in Tastes, Productivities, and Macroeconomic Volatility

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  • Masashige Hamano

    (School of Political Science and Economics, Waseda University)

Abstract

This paper examines how heterogeneity in product-level tastes and firm-level technologies shapes macroeconomic fluctuations. We develop a general equilibrium model with multiproduct firms and endogenous entry, where firms adjust their product mix in response to aggregate shocks. Calibrated to U.S. data, the model replicates key business cycle moments and shows that low taste dispersion amplifies aggregate volatility by limiting per-product profit adjustments, whereas high dispersion dampens fluctuations. While firm-level productivity granularity also affects volatility, its impact is comparatively minor. A simplified analytical model reinforces these findings, highlighting the critical role of aggregate shock propagation to firm- and product-level fixed costs, as well as heterogeneity in tastes and technologies, in determining macroeconomic volatility.

Suggested Citation

  • Masashige Hamano, 2025. "Heterogeneity in Tastes, Productivities, and Macroeconomic Volatility," Working Papers 2502, Waseda University, Faculty of Political Science and Economics.
    • Handle: RePEc:wap:wpaper:2502
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    File URL: https://www.waseda.jp/fpse/winpec/assets/uploads/2025/04/99b0d5af0bcbb552230c970fda2acf82-1.pdf
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    References listed on IDEAS

    as
    1. Masashige HAMANO & Toshihiro OKUBO, 2021. "In Search of Lost Time: Firm Vintage and Macroeconomic Dynamics," Discussion papers 21015, Research Institute of Economy, Trade and Industry (RIETI).
    Full references (including those not matched with items on IDEAS)

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    1. Masashige HAMANO & Toshihiro OKUBO, 2023. "Product Dynamics and Macroeconomic Shocks: Insights from a DSGE model and Japanese data," Discussion papers 23045, Research Institute of Economy, Trade and Industry (RIETI).
    2. Masashige Hamano & Keita Oikawa, 2022. "Multi-Product Establishments and Product Dynamics," Working Papers e168, Tokyo Center for Economic Research.

    More about this item

    Keywords

    Firm Heterogeneity; Multi-Product Firms; Business Cycles; Product Quality;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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