International Finance Discussion Papers (IFDP)
May 2015
Firm Dynamics and the Origins of Aggregate Fluctuations
Abstract:
What drives aggregate fluctuations? I test the granular hypothesis, according to which the largest firms in the economy drive aggregate dynamics, by estimating a dynamic factor model with firm-level data and controlling for the propagation of firm-level shocks using multi-firm growth model. Each time series, the growth rate of sales of a specific firm, is decomposed in an unobserved common macroeconomic component and in a residual that I interpret as an idiosyncratic firm-level component. The empirical results suggest that, once I control for aggregate shocks, idiosyncratic shocks do not explain much of U.S. GDP growth fluctuations.
Accessible materials (.zip) | Replication Files (.zip)
Keywords: Business Cycles, Firm Dynamics, Granular Residual, Dynamic Factor Models
DOI: http://dx.doi.org/10.17016/IFDP.2015.1133
PDF: Full Paper