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Heterogeneous firms and the micro origins of aggregate fluctuations. National Bank of Belgium Working Paper No. 312

Magerman, Glenn and De Bruyne, Karolien and Dhyne, Emmanuel and Van Hove, Jan (2016) Heterogeneous firms and the micro origins of aggregate fluctuations. National Bank of Belgium Working Paper No. 312. [Working Paper]

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    This paper evaluates the impact of idiosyncratic productivity shocks to individual firms on aggregate output. Two sources of firm-level heterogeneity contribute to aggregate fluctuations: (i) asymmetries in supplier-buyer relationships and (ii) the skewed distribution of sales to final demand. We first develop a model with monopolistic competitive firms and derive a generalized centrality measure that takes these two sources of heterogeneity into account. The model is subsequently estimated using unique data on firm-to-firm transactions across all economic activities in Belgium. The model generates aggregate volatility from micro origins in the same order of magnitude as observed volatility in GDP. The top 100 firms contribute to 90% of the volatility generated by the model, underlining a strong granularity of the economy. Counterfactual analysis further shows that both sources of micro heterogeneity contribute substantially to aggregate fluctuations, while the relative contribution of each channel crucially depends on the labor share in the economy.

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    Item Type: Working Paper
    Uncontrolled Keywords: Heterogeneous firms, networks, input-output linkages, aggregate volatility
    Subjects for non-EU documents: Countries > Belgium
    EU policies and themes > Policies & related activities > economic and financial affairs > business/private economic activity
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > National Bank of Belgium (Brussels) > Working Papers
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 29 Nov 2019 15:39
    Number of Pages: 47
    Last Modified: 29 Nov 2019 15:39

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