Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/26369 
Year of Publication: 
2008
Series/Report no.: 
CESifo Working Paper No. 2324
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Aggregated output in industrialized countries has become less volatile over the past decades. Whether this Great Moderation” can be found in firm level data as well remains disputed. We study the evolution of firm level output volatility using a balanced panel dataset on German firms that covers 35 years (1971-2005) and about 1,500 firms per year. In contrast to earlier work using firm level data, we use the multifactor residual model proposed by Pesaran (2006) to isolate the idiosyncratic component of firms' real sales growth from macroeconomic developments. Our paper has three main findings. First, time trends in unconditional firm level and aggregated output volatility in Germany are similar. There has been a long-run downward trend, which was interrupted by the unification period. Second, the conditional, idiosyncratic firm level volatility does not exhibit a downward trend. If anything idiosyncratic volatility has been on a slow trend rise. Third, we find evidence of a positive link between growth and volatility at the firm level.
Subjects: 
Firm level volatility
great moderation
multifactor residual model
JEL: 
E32
D21
Document Type: 
Working Paper
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