Product Dynamics and Macroeconomic Shocks: Insights from a DSGE model and Japanese data

This paper investigates the relationships between aggregate shocks and individual products in the economy, aiming to inform macroeconomic policy and address sectoral imbalances. Using Japanese manufacture census data from 1992 to 2013, we analyze product sales growth (intensive margins) and the number of product-producing plants (extensive margins) to identify patterns and heterogeneity across products and product categories. We employ a structural model to analyze the sources of product business cycles, finding that product-specific demand shocks play a crucial role in explaining product sales dynamics, while both product-specific and plant-product specific shocks are essential for understanding extensive margins. Our findings offer important implications for the design of targeted and effective policies that promote stability, growth, employment, and inclusiveness across diverse sectors of the economy.