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Large Firm Dynamics and the Business Cycle

The American economic review, 2019-04, Vol.109 (4), p.1375-1425 [Peer Reviewed Journal]

Copyright American Economic Association Apr 2019 ;ISSN: 0002-8282 ;EISSN: 1944-7981 ;DOI: 10.1257/aer.20151317

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  • Title:
    Large Firm Dynamics and the Business Cycle
  • Author: Carvalho, Vasco M. ; Grassi, Basile
  • Subjects: Big business ; Business cycles ; Economic models ; Productivity
  • Is Part Of: The American economic review, 2019-04, Vol.109 (4), p.1375-1425
  • Description: Do large firm dynamics drive the business cycle? We answer this question by developing a quantitative theory of aggregate fluctuations caused by firm-level disturbances alone. We show that a standard heterogeneous firm dynamics setup already contains in it a theory of the business cycle, without appealing to aggregate shocks. We offer an analytical characterization of the law of motion of the aggregate state in this class of models, the firm size distribution, and show that aggregate output and productivity dynamics display: (i) persistence, (ii) volatility, and (iii) time-varying second moments. We explore the key role of moments of the firm size distribution, and, in particular, the role of large firm dynamics, in shaping aggregate fluctuations, theoretically, quantitatively, and in the data.
  • Publisher: Nashville: American Economic Association
  • Language: English
  • Identifier: ISSN: 0002-8282
    EISSN: 1944-7981
    DOI: 10.1257/aer.20151317
  • Source: ProQuest Central
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