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Aggregate and Firm level volatility: the role of acquisitions and disposals

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  • Devonald, L.
  • Higson, C.
  • Holly, S.

Abstract

The purpose of this paper is to revisit an intriguing finding. Although over the last few decades leading up to the financial crisis there was a marked reduction in the volatility of aggregate output and inflation, there appears to have been a corresponding increase in the sales volatility of individual firms. Here we argue that a significant reason for this apparent increase in firm level volatility was an increase in churning of firm activity through the acquisition and disposal of businesses. This created an increase in observed negative covariances between firms, so even if the volatility of underlying organic growth has also fallen, observed volatility has risen

Suggested Citation

  • Devonald, L. & Higson, C. & Holly, S., 2017. "Aggregate and Firm level volatility: the role of acquisitions and disposals," Cambridge Working Papers in Economics 1748, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:1748
    Note: sh247
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    Volatility; firm level growth;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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