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Title:The cross-section of firms over the business cycle: new facts and a DSGE exploration PDF Logo
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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