This paper uses a database covering the universe of French firms for the period 1990-
2007 to provide a forensic account of the role of individual firms in generating aggregate
fluctuations. We set up a simple multi-sector model of heterogeneous firms selling to
multiple markets to motivate a theoretically-founded decomposition of firms' annual
sales growth rate into different components. We find that the firm-specific component
contributes substantially to aggregate sales volatility, mattering about ...
This paper uses a database covering the universe of French firms for the period 1990-
2007 to provide a forensic account of the role of individual firms in generating aggregate
fluctuations. We set up a simple multi-sector model of heterogeneous firms selling to
multiple markets to motivate a theoretically-founded decomposition of firms' annual
sales growth rate into different components. We find that the firm-specific component
contributes substantially to aggregate sales volatility, mattering about as much as the
components capturing shocks that are common across firms within a sector or country.
We then decompose the firm-specific component to provide evidence on two mechanisms
that generate aggregate fluctuations from microeconomic shocks highlighted in the recent
literature: (i) when the firm size distribution is fat-tailed, idiosyncratic shocks to
large firms directly contribute to aggregate fluctuations; and (ii) aggregate fluctuations
can arise from idiosyncratic shocks due to input-output linkages across the economy.
Firm linkages are approximately three times as important as the direct effect of firm
shocks in driving aggregate fluctuations.
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