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Aggregate fluctuations and the effect of large corporations: Evidence from Finnish monthly data

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  • Fornaro, Paolo
  • Luomaranta, Henri

Abstract

We investigate whether the granular hypothesis holds for the Finnish economy. In particular, we test if a sizable share of macroeconomic fluctuations is generated by firm-specific shocks to sales and productivity. We examine monthly firm-level data and find that the idiosyncratic shocks affecting large corporations explain around a third of business cycle fluctuations. This fact holds true both when we use the cross-sectional averages of sales and the estimated common factors, to control for common shocks. Moreover, we observe that the largest four corporations are the main drivers of this result. Finally, we detect a clear break in this relationship coinciding with the Great Recession. In particular, from 2010 onward the firm-level shocks lose their explanatory power. The findings of this paper point toward the importance of studying the granular hypothesis in a dynamic context, taking into account the possibility of breaks.

Suggested Citation

  • Fornaro, Paolo & Luomaranta, Henri, 2018. "Aggregate fluctuations and the effect of large corporations: Evidence from Finnish monthly data," Economic Modelling, Elsevier, vol. 70(C), pages 245-258.
    • Handle: RePEc:eee:ecmode:v:70:y:2018:i:c:p:245-258
    DOI: 10.1016/j.econmod.2017.11.012
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    Cited by:

    1. Murilo Silva & Sergio Da Silva, 2020. "The Brazilian granular business cycle," Economics Bulletin, AccessEcon, vol. 40(1), pages 463-472.
    2. Yu, Zhuangxiong & Cheng, Jiajia & Mukhopadhaya, Pundarik & Dong, Jiemiao, 2023. "Do information spillovers across products aggravate product market monopoly? An examination with Chinese data," Economic Modelling, Elsevier, vol. 125(C).
    3. Fornaro, Paolo, 2017. "Know the Present to Understand the Future: Nowcasting and Forecasting the Finnish Economy," ETLA Brief 59, The Research Institute of the Finnish Economy.
    4. Henri Luomarant & Fernando Cantu & Steve MacFeely & Anu Peltola, . "The role of multinational and trading enterprises in employment and the gender pay gap: evidence from Finland," UNCTAD Transnational Corporations Journal, United Nations Conference on Trade and Development.
    5. Jozef Konings & Galiya Sagyndykova & Venkat Subramanian & Astrid Volckaert, 2023. "The granular nature of emerging market economies: The case of Kazakhstan," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 31(2), pages 429-464, April.
    6. Elguellab Ali & Ezzahid Elhadj, 2023. "The granularity of the manufacturing sector : insights from a developing economy," Economics Bulletin, AccessEcon, vol. 43(3), pages 1254-1264.
    7. Jozef Konings & Galiya Sagyndykova & Venkat Subramanian & Astrid Volckaert, 2021. "The granular economy of Kazakhstan," Working Papers 2021/01, Nazarbayev University, Graduate School of Business.
    8. Adriano Maia & Guilherme De Oliveira & Raul Matsushita & Sergio Da Silva, 2023. "Granular banks and corporate investment," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 47(3), pages 586-599, September.
    9. Mantas Lukauskas & Vaida Pilinkienė & Jurgita Bruneckienė & Alina Stundžienė & Andrius Grybauskas & Tomas Ruzgas, 2022. "Economic Activity Forecasting Based on the Sentiment Analysis of News," Mathematics, MDPI, vol. 10(19), pages 1-22, September.
    10. Svetlana Popova, 2019. "Idiosyncratic shocks: estimation and the impact on aggregate fluctuations," Bank of Russia Working Paper Series wps46, Bank of Russia.
    11. Fornaro, Paolo & Kaihovaara, Antti, 2020. "Microdynamics, granularity and populism: The Finnish case," European Journal of Political Economy, Elsevier, vol. 65(C).

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    More about this item

    Keywords

    Business cycles; Granular residual; Business groups;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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