Firms and Aggregate Dynamics

Francesco Franco, Thomas Philippon
2007 Review of Economics and Statistics  
We investigate the role of permanent and transitory shocks for firms and aggregate dynamics. We find that permanent shocks to productivity and permanent shifts in the composition of output explain at least four-fifths of firms' dynamics. However, these permanent shocks are almost uncorrelated across firms and are therefore less relevant for aggregate dynamics. Transitory shocks, on the other hand, are not very important at the firm level, but they account for most of the volatility of aggregate
more » ... tility of aggregate hours and output, because they are significantly correlated across firms. Finally, we try to make some progress on the interpretation of the shocks.
doi:10.1162/rest.89.4.587 fatcat:hun6ph24h5fbnjktn2zvuqrkd4