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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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Big Banks and Macroeconomic Outcomes: Theory and Cross-Country Evidence of Granularity
Franziska Bremus,Claudia M. Buch,Katheryn N. Russ,Katheryn N. Russ,Monika Schnitzer,Monika Schnitzer +5 more
TL;DR: Gabaix et al. as discussed by the authors developed a theory of granularity for the banking sector, introducing Bertrand competition and heterogeneous banks charging variable markups, and empirically assessed the relevance of these granular effects in banking using a linked micro-macro dataset of more than 80 countries.
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Propagation of negative shocks across nation-wide firm networks
Hiroyasu Inoue,Yasuyuki Todo +1 more
TL;DR: It is found that network structures severely affect the speed of propagation in the short run, the total loss in the long run, and the scale-free nature of the actual supply-chain network—that is, the power-law degree distribution—leads to faster propagation.
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Econometric Analysis of Production Networks with Dominant Units
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