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

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper Series 1 ; No. 2009,17

Classification and Topics

• Classification: Wirtschaft ; Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy: General (includes Measurement and Data) ; Investment; Capital; Intangible Capital; Capacity ; Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) ; Business Fluctuations; Cycles
• Subject: Ss model ; RBC model ; cross-sectional firm dynamics ; lumpy investment ; countercyclical risk ; aggregate shocks ; idiosyncratic shocks ; heterogeneous firms. ; Real Business Cycle ; Produktivität ; Schock ; Konjunktur ; Risiko ; Innovation ; Investition ; Dynamisches Gleichgewicht ; Theorie ; Deutschland

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bachmann, Ruediger ; Bayer, Christian
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/27743
• Last update: 10.03.2025, 11:44 AM CET