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Discussion Paper Series 1: Economic Studies, Deutsche Bundesbank >
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http://hdl.handle.net/10419/27743
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| Title: | | The cross-section of firms over the business cycle: new facts and a DSGE exploration  |
| Authors: | | Bachmann, Ruediger Bayer, Christian |
| Issue Date: | | 2009 |
| Series/Report no.: | | Discussion Paper Series 1: Economic Studies 2009,17 |
| Abstract: | | Using a unique German firm-level data set, this paper is the first to jointly study the cyclical properties of the cross-sections of firm-level real value added and Solow residual innovations, as well as capital and employment adjustment. We find two new business cycle facts: 1) The cross-sectional standard deviation of firm-level innovations in the Solow residual, value added and employment is robustly and significantly countercyclical. 2) The cross-sectional standard deviation of firm-level investment is procyclical. We show that a heterogeneousfirm RBC model with quantitatively realistic countercyclical innovations in the firm-level Solow residual and non-convex adjustment costs calibrated to the non-Gaussian features of the steady state investment rate distribution, produces investment dispersion that positively comoves with the cycle, with a correlation coefficient of 0.65, compared to 0.61 in the data. We argue more generally that the cross-sectional business cycle dynamics impose tight empirical restrictions on structural parameters and stochastic properties of driving forces in heterogeneousfirmmodels, and are therefore paramount in the calibration of these models. |
| Subjects: | | Ss model RBC model cross-sectional firm dynamics lumpy investment countercyclical risk aggregate shocks idiosyncratic shocks heterogeneous firms. |
| JEL: | | E20 E22 E30 E32 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Discussion Paper Series 1: Economic Studies, Deutsche Bundesbank
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