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Heterogeneity in Tastes, Productivities, and Macroeconomic Volatility

Author

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  • Masashige Hamano

    (School of Political Science and Economics, Waseda University)

Abstract

This paper examines how heterogeneity in product-level tastes and firm-level technologies shapes macroeconomic fluctuations. We develop a general equilibrium model with multiproduct firms and endogenous entry, where firms adjust their product mix in response to aggregate shocks. Calibrated to U.S. data, the model replicates key business cycle moments and shows that low taste dispersion amplifies aggregate volatility by limiting per-product profit adjustments, whereas high dispersion dampens fluctuations. While firm-level productivity granularity also affects volatility, its impact is comparatively minor. A simplified analytical model reinforces these findings, highlighting the critical role of aggregate shock propagation to firm- and product-level fixed costs, as well as heterogeneity in tastes and technologies, in determining macroeconomic volatility.

Suggested Citation

  • Masashige Hamano, 2025. "Heterogeneity in Tastes, Productivities, and Macroeconomic Volatility," Working Papers 2502, Waseda University, Faculty of Political Science and Economics.
    • Handle: RePEc:wap:wpaper:2502
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    More about this item

    Keywords

    Firm Heterogeneity; Multi-Product Firms; Business Cycles; Product Quality;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • 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
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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