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Dispersion over the business cycle: passthrough, productivity and demand?

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We characterize the dispersion of firm-level productivity and demand shocks over the business cycle using Swedish microdata including prices and analyse the consequences for firms and the aggregate economy. Demand dispersion increases by more than productivity dispersion in recessions. Productivity shocks pass through incompletely to prices and have limited effect on sales dispersion. Demand shocks explain most of the variation in sales dispersion. In a heterogeneous-firm model matching the micro facts, demand dispersion has unambiguously negative effects on output via increased uncertainty and a “wait and see” channel. Productivity dispersion does not generate “wait and see” effects, but affects output negatively by inducing markup dispersion.

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  • Carlsson, Mikael & Clymo, Alex & Joslin, Knut-Eric, 2023. "Dispersion over the business cycle: passthrough, productivity and demand?," Working Paper Series 2023:1, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    • Handle: RePEc:hhs:ifauwp:2023_001
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    1. Mikael Carlsson & Oskar Nordstrom Skans, 2012. "Evaluating Microfoundations for Aggregate Price Rigidities: Evidence from Matched Firm-Level Data on Product Prices and Unit Labor Cost," American Economic Review, American Economic Association, vol. 102(4), pages 1571-1595, June.
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    More about this item

    Keywords

    demand estimation; productivity; variable markups; business cycles; dispersion; uncertainty; passthrough; adjustment costs;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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