Firms, destinations, and aggregate fluctuations

Julian di Giovanni, Andrei Levchenko and Isabelle Mejean

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: This paper uses a database covering the universe of French firms for the period 1990- 2007 to provide a forensic account of the role of individual firms in generating aggregate fluctuations. We set up a simple multi-sector model of heterogeneous firms selling to multiple markets to motivate a theoretically-founded decomposition of firms' annual sales growth rate into different components. We find that the firm-specific component contributes substantially to aggregate sales volatility, mattering about as much as the components capturing shocks that are common across firms within a sector or country. We then decompose the firm-specific component to provide evidence on two mechanisms that generate aggregate fluctuations from microeconomic shocks highlighted in the recent literature: (i) when the firm size distribution is fat-tailed, idiosyncratic shocks to large firms directly contribute to aggregate fluctuations; and (ii) aggregate fluctuations can arise from idiosyncratic shocks due to input-output linkages across the economy. Firm linkages are approximately three times as important as the direct effect of firm shocks in driving aggregate fluctuations.

Keywords: Aggregate Fluctuations; Firm-Level Shocks; Large Firms; Linkages. (search for similar items in EconPapers)
JEL-codes: E32 F12 F41 (search for similar items in EconPapers)
Date: 2013-10, Revised 2014-04
New Economics Papers: this item is included in nep-bec, nep-mac and nep-opm
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Citations: View citations in EconPapers (238)

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Related works:
Journal Article: Firms, Destinations, and Aggregate Fluctuations (2014)
Working Paper: Firms, Destinations, and Aggregate Fluctuations (2014)
Working Paper: Firms, Destinations, and Aggregate Fluctuations (2013)
Working Paper: Firms, Destinations, and Aggregate Fluctuations (2012)
Working Paper: Firms, Destinations, and Aggregate Fluctuations (2012)
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