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Do we need firm data to understand macroeconomic dynamics?

Author

Listed:
  • Lenza, Michele

    (ECB)

  • Savoia, Ettore

    (Research Department, Central Bank of Sweden)

Abstract

We study the role of heterogeneity in the revenues of individual firms for euro area macroecconomic dynamics. To this end, we specify two models: a standard aggregate vector autoregressive model (VAR) and an “heterogeneous VAR” (HVAR). The VAR model includes only aggregate data, while the HVAR model also incorporates the feedback loop between firms’ revenue distribution and aggregate variables. Our results demonstrate that the behavior of firms’ revenue distribution plays a significant role in explaining the dynamics of key euro area macroeconomic variables.

Suggested Citation

  • Lenza, Michele & Savoia, Ettore, 2024. "Do we need firm data to understand macroeconomic dynamics?," Working Paper Series 438, Sveriges Riksbank (Central Bank of Sweden).
    • Handle: RePEc:hhs:rbnkwp:0438
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    More about this item

    Keywords

    Firm-level revenues; Functional Vector Autoregressions; Heterogeneous Agent Models; Business Cycle fluctuations;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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