Working Paper: CEPR ID: DP16824
Authors: Francesco Grigoli; Emiliano Luttini; Damiano Sandri
Abstract: This paper provides the first assessment of the contribution of idiosyncratic shocks to aggregate fluctuations in an emerging market using confidential data on the universe of Chilean firms. We find that idiosyncratic shocks account for more than 40 percent of the volatility of aggregate sales. Although quite large, this contribution is smaller than documented in previous studies based on advanced economies, despite a higher degree of market concentration in Chile. We show that this finding is explained by larger firms being less volatile and by weaker propagation effects across Chilean firms.
Keywords: business cycle; firm-level shocks; granularity; propagation
JEL Codes: E32; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| idiosyncratic shocks (D89) | aggregate sales volatility (C43) |
| firm size (L25) | sales volatility (G17) |
| idiosyncratic shocks (D89) | contribution to aggregate volatility (E32) |
| larger firms (L25) | smaller contribution of idiosyncratic shocks (E19) |
| linkage component (Y80) | smaller contribution of idiosyncratic shocks (E19) |