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Skewed Business Cycles

Author

Listed:
  • Sergio Salgado

    (University of Minnesota)

  • Fatih Guvenen

    (University of Minnesota)

  • Nicholas Bloom

    (Stanford University)

Abstract

We show in panels of US Census and international firm data that the cross-sectional skewness of employment and sales growth distributions are procyclical. In particular, during recessions they display a large left-tail of negative growth rates (and during booms a large right tail of positive growth rates). These results are extremely robust to different selection criteria, across countries, industries, and measures. We build a heterogeneous-agents model in which entrepreneurs face shocks with time varying skewness risk that matches the firm-level distributions we document for the US. This model shows that a negative shock to skewness (that keeps the mean and variance constant) to firms’ productivity growth generates significant and persistent decreases in investment, hiring, growth and consumption. Hence, we argue that periods of heightened left-tail risk help to drive business cycle fluctuations.

Suggested Citation

  • Sergio Salgado & Fatih Guvenen & Nicholas Bloom, 2019. "Skewed Business Cycles," 2019 Meeting Papers 1189, Society for Economic Dynamics.
    • Handle: RePEc:red:sed019:1189
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    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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