Paper #1481

Título:

Large firm dynamics and the business cycle

Autores:

Vasco Carvalho y Basile Grassi

Fecha:

Abril 2015

Resumen:

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 a complete analytical characterization of the law of motion of the aggregate state in this class of models � the firm size distribution � and show that the resulting closed form solutions for 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.

Palabras clave:

Large Firm Dynamics; Firm Size Distribution; Random Growth; Aggregate Fluctuations.

Área de investigación:

Macroeconomía y Economía Internacional

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