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The Empirical Distribution of Firm Dynamics and Its Macro Implications

Author

Listed:
  • Nir Jaimovich
  • Stephen J. Terry
  • Nicolas Vincent
Abstract
Heterogeneous firm models are ubiquitous in modern macroeconomics. We revisit a central feature of these models: the idiosyncratic shock process faced by firms. Using a large representative firm-level dataset, we document nonparametrically that the common assumption, a Gaussian AR(1) shock process, is at odds in important ways with observed fat-tailed firm dynamics. We embed these findings within a standard quantitative general equilibrium heterogeneous firm dynamics model and show that the nature of firm-level shocks has a sizable quantitative effect on the economy’s responsiveness to aggregate shifts.

Suggested Citation

  • Nir Jaimovich & Stephen J. Terry & Nicolas Vincent, 2023. "The Empirical Distribution of Firm Dynamics and Its Macro Implications," NBER Working Papers 31337, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31337
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    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General

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