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The Granular Origins of Aggregate Fluctuations
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This article showed that idiosyncratic firm-level fluctuations can explain an important part of aggregate shocks, and provide a micro-foundation for aggregate productivity shocks, arguing that individual firm shocks average out in aggregate.Abstract:
This paper proposes that idiosyncratic firm-level fluctuations can explain an important part of aggregate shocks, and provide a microfoundation for aggregate productivity shocks. Existing research has focused on using aggregate shocks to explain business cycles, arguing that individual firm shocks average out in aggregate. I show that this argument breaks down if the distribution of firm sizes is fat-tailed, as documented empirically. The idiosyncratic movements of the largest 100 firms in the US appear to explain about one third of variations in output and the Solow residual. This "granular" hypothesis suggests new directions for macroeconomic research, in particular that macroeconomic questions can be clarified by looking at the behavior of large firms. This paper's ideas and analytical results may also be useful to think about the fluctuations of other economic aggregates, such as exports or the trade balance.read more
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How production networks amplify economic growth.
TL;DR: Predictions for how this network amplifies the effects of technological improvements as they propagate along chains of production are developed, showing that longer production chains for an industry bias it toward faster price reduction and that longerProduction chains for a country bias it towards faster growth.
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The impact of global value chains on the euro area economy
Vanessa Gunnella,Alexander Al-Haschimi,Konstantins Benkovskis,Francesco Chiacchio,Francois de Soyres,Benedetta Di Lupidio,Michael Fidora,Sebastian Franco-Bedoya,Erik Frohm,Katerina Gradeva,Paloma Lopez-Garcia,Gerrit B. Koester,Christiane Nickel,Chiara Osbat,Elena Pavlova,Martin Schmitz,Joachim Schroth,Frauke Skudelny,Alex Tagliabracci,Elena Vaccarino,Julia Wörz,Ettore Dorrucci +21 more
TL;DR: In this paper, the authors focus on the economic implications of euro area firms' participation in global value chains (GVCs) and show how, and to what extent, a large set of economic variables and interlinkages have been affected by international production sharing.
References
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