Firm-Specific Productivity Risk Over The Business Cycle: Facts And Aggregate Implications

Date Added: Jun 2009
Format: PDF

This paper investigates this question in the context of a heterogeneous firm RBC model with persistent firm-level productivity shocks and lumpy capital adjustment, where cyclical changes in uncertainty correspond naturally to cyclical changes in the cross-sectional dispersion of firm-specific Solow residual innovations. The authors use a unique German firm-level data set to investigate the extent to which the firm-level uncertainty varies over the cycle. This allows us to put empirical discipline on our numerical simulations.