Abstract
In this work we study the granular origins of business cycles and their possible underlying drivers. As shown by Gabaix (Econometrica 79:733–772, 2011), the skewed nature of firm size distributions implies that idiosyncratic (and independent) firm-level shocks may account for a significant portion of aggregate volatility. Yet, we question the original view grounded on “supply granularity”, as proxied by productivity growth shocks – in line with the Real Business Cycle framework–, and we provide empirical evidence of a “demand granularity”, based on investment growth shocks instead. The role of demand in explaining aggregate fluctuations is further corroborated by means of a macroeconomic Agent-Based Model of the “Schumpeter meeting Keynes” family Dosi et al. (J Econ Dyn Control 52:166–189, 2015). Indeed, the investigation of the possible microfoundation of RBC has led us to the identification of a sort of microfounded Keynesian multiplier.
Highlights
Every economy is composed by a multitude of heterogeneous, interacting firms
In this work we study the granular origins of business cycles and their possible underlying drivers
We find that the “demand-granularity” hypothesis is confirmed in our preferred specifications: the investment growth granular residual has a positive impact on GDP growth
Summary
Every economy is composed by a multitude of heterogeneous, interacting firms. And such firms are not of similar size but their size distributions are skewed and fattailed (see e.g. Axtell, 2001). His positive result on US data would posit that individual shocks to firms should substitute the usual aggregate productivity shocks as the source of fluctuations, yet keeping the core of the theory (i.e. the link between productivity shocks and economic growth) intact.
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