The Granular Origins of Aggregate Fluctuations ∗

@inproceedings{Gabaix2005TheGO,
  title={The Granular Origins of Aggregate Fluctuations ∗},
  author={Xavier Gabaix},
  year={2005}
}
This paper proposes that idiosyncratic firm-level fluctuations can explain an important part of aggregate shocks, and provide a microfoundation for aggregate productivity shocks. Existing research has focused on using aggregate shocks to explain business cycles, arguing that individual firm shocks average out in aggregate. I show that this argument breaks down if the distribution of firm sizes is fat-tailed, as documented empirically. The idiosyncratic movements of the largest 100 firms in the… CONTINUE READING
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