Firms,Destinations, and Aggregate Fluctuations

This paper uses a data base covering the universe of French firms for the period 1990–2007 to provide a forensic account of the role of individual firms in generating aggregate fluctuations. We set up a simple multisector model of heterogeneous firms selling to multiple markets to motivate a theoretically founded decomposition of firms' annual sales growth rate into different components. We find that the firm‐specific component contributes substantially to aggregate sales volatility, mattering about as much as the components capturing shocks that are common across firms within a sector or country. We then decompose the firm‐specific component to provide evidence on two mechanisms that generate aggregate fluctuations from microeconomic shocks highlighted in the recent literature: (i) when the firm size distribution is fat‐tailed, idiosyncratic shocks to large firms directly contribute to aggregate fluctuations, and (ii) aggregate fluctuations can arise from idiosyncratic shocks due to input–output linkages across the economy. Firm linkages are approximately three times as important as the direct effect of firm shocks in driving aggregate fluctuations.     

The Granular Origins of Aggregate Fluctuations

This paper proposes that idiosyncratic firm‐level shocks can explain an important part of aggregate movements and provide a microfoundation for aggregate shocks. Existing research has focused on using aggregate shocks to explain business cycles, arguing that individual firm shocks average out in the aggregate. I show that this argument breaks down if the distribution of firm sizes is fat‐tailed, as documented empirically. The idiosyncratic movements of the largest 100 firms in the United States appear to explain about one‐third of variations in output growth. This “granular” hypothesis suggests new directions for macroeconomic research, in particular that macroeconomic questions can be clarified by looking at the behavior of large firms. This paper's ideas and analytical results may also be useful for thinking about the fluctuations of other economic aggregates, such as exports or the trade balance.     

FINANCIAL FRAGILITY,LIQUIDITY, AND ASSET PRICES

We define a financial system to be fragile if small shocks have disproportionately large effects. In a model of financial intermediation, we show that small shocks to the demand for liquidity cause either high asset‐price volatility or bank defaults or both. Furthermore, as the liquidity shocks become vanishingly small, the asset‐price volatility is bounded away from zero. In the limit economy, with no shocks, there are many equilibria. However, if banks face idiosyncratic liquidity shocks, then the only equilibria that are robust to the introduction of small aggregate risk involve stochastic consumption as well as volatile asset, prices. (JEL: D5, D8, G2)     

Customers’ Capital Market Information Quality and Suppliers’ Performance

We empirically examine the association between downstream firms’, i.e., customers’ capital market information quality, and the operating performance of upstream firms, i.e., suppliers. Customers’ capital market information quality is measured by the customers’ provision of earnings forecasts, the customers’ reported earnings quality, and the customers’ coverage by financial analysts and credit rating agencies. We hypothesize and find a positive association between customers’ capital market information quality and suppliers’ operating performance measured by the DuPont profitability ratios. The association is stronger for suppliers with higher sales volatility, no order backlogs, customers who are less dependent on their input, and shorter business relation with customers. Collectively, the results suggest that the quality of information provided by the customers to the capital market has a spillover effect in the input market, i.e., helps the suppliers improve their performance.     

VOLATILITY,LABOR MARKET FLEXIBILITY,AND THE PATTERN OF COMPARATIVE ADVANTAGE

This paper studies the link between volatility, labor market flexibility, and international trade. International differences in labor market regulations affect how firms can adjust to idiosyncratic shocks. These institutional differences interact with sector specific differences in volatility (the variance of the firm‐specific shocks in a sector) to generate a new source of comparative advantage. Other things equal, countries with more flexible labor markets specialize in sectors with higher volatility. Empirical evidence for a large sample of countries strongly supports this theory: the exports of countries with more flexible labor markets are biased towards high‐volatility sectors. We show how differences in labor market institutions can be parsimoniously integrated into the workhorse model of Ricardian comparative advantage of Dornbusch, Fischer, and Samuelson (1977, American Economic Review, 67, 823–839). We also show how our model can be extended to multiple factors of production.     

Uncertainty and Unemployment

This paper studies the impact of time‐varying idiosyncratic risk at the establishment level on unemployment fluctuations over 1972–2009. I build a tractable directed search model with firm dynamics and time‐varying idiosyncratic volatility. The model allows for endogenous separations, entry and exit, and job‐to‐job transitions. I show that the model can replicate salient features of the microeconomic behavior of firms and that the introduction of volatility improves the fit of the model for standard business cycle moments. In a series of counterfactual experiments, I show that time‐varying risk is important to account for the magnitude of fluctuations in aggregate unemployment for past U.S. recessions. Though the model can account for about 40% of the total increase in unemployment for the 2007–2009 recession, uncertainty alone is not sufficient to explain the magnitude and persistence of unemployment during that episode.     

UNDERSTANDING CHANGES IN INTERNATIONAL BUSINESS CYCLE DYNAMICS

The volatility of economic activity in most G7 economies has moderated over the past 40 years. Also, despite large increases in trade and openness, G7 business cycles have not become more synchronized. After documenting these facts, we interpret G7 output data using a structural VAR that separately identifies common international shocks, the domestic effects of spillovers from foreign idiosyncratic shocks, and the effects of domestic idiosyncratic shocks. This analysis suggests that, with the exception of Japan, a significant portion of the widespread reduction in volatility is associated with a reduction in the magnitude of the common international shocks. Had the common international shocks in the 1980s and 1990s been as large as they were in the 1960s and 1970s, G7 business cycles would have been substantially more volatile and more highly synchronized than they actually were. (JEL: C3, E5)     

THE INTERNATIONAL TRANSMISSION OF VOLATILITY SHOCKS: AN EMPIRICAL ANALYSIS

This paper proposes an empirical model which can be used to estimate the international transmission of volatility shocks. Using this model we estimate that a one standard deviation increase in the volatility of the shock to US real GDP leads to a decline in UK GDP of 1% relative to trend and a 0.7% increase in UK CPI relative to trend at the two‐year horizon. Using a nonlinear open‐economy DSGE model, we find that these empirical estimates are consistent with the response to a perturbation to the volatility of foreign “supply” type shocks, while an increase in the volatility of demand shocks has a negligible impact.     

Consumption Commitments and Habit Formation

We analyze the implications of household‐level adjustment costs for the dynamics of aggregate consumption. We show that an economy in which agents have “consumption commitments” is approximately equivalent to a habit formation model in which the habit stock is a weighted average of past consumption if idiosyncratic risk is large relative to aggregate risk. Consumption commitments can thus explain the empirical regularity that consumption is excessively sensitive and excessively smooth, findings that are typically attributed to habit formation. Unlike habit formation and other theories, but consistent with empirical evidence, the consumption commitments model also predicts that excess sensitivity and smoothness vanish for large shocks. These results suggest that behavior previously attributed to habit formation may be better explained by adjustment costs. We develop additional testable predictions to further distinguish the commitment and habit models and show that the two models have different welfare implications.     

UPSTREAM VOLATILITY IN THE SUPPLY CHAIN: THE MACHINE TOOL INDUSTRY AS A CASE STUDY

Cyclicality is a well‐known and accepted fact of life in market‐driven economies. Less well known or understood, however, is the phenomenon of amplification as one looks “upstream” in the industrial supply chain. We examine the amplification phenomenon and its implications through the lens of one upstream industry that is notorious for the intensity of the business cycles it faces: the machine tool industry. Amplification of demand volatility in capital equipment supply chains, e. g., machine tools, is particularly large relative to that seen in distribution and component parts supply chains. We present a system dynamics simulation model to capture demand volatility amplification in capital supply chains. We explore the lead‐time, inventory, production, productivity, and staffing implications of these dynamic forces. Several results stand out. First, volatility hurts productivity and lowers average worker experience. Second, even though machine tool builders can do little to reduce the volatility in their order streams through choice of forecast rule, a smoother forecasting policy will lead companies to retain more of their skilled work force. This retention of skilled employees is often cited as one of the advantages that European and Japanese companies have had relative to their U. S. competitors. Our results suggest some insights for supply chain design and management: downstream customers can do a great deal to reduce the volatility for upstream suppliers through their choice of order forecast rule. In particular, companies that use smoother forecasting policies tend to impose less of their own volatility upon their supply base and may consequently enjoy system‐wide cost reduction.     

OIL AND THE MACROECONOMY: A QUANTITATIVE STRUCTURAL ANALYSIS

We model an open economy where macroeconomic variables fluctuate in response to oil supply shocks, as well as aggregate demand and supply shocks generated domestically and abroad. We use several robust predictions of the model to identify five fundamental shocks underlying the fluctuations of the (real) oil price, the US activity and the global business cycle. The estimates show that supply shocks generated in the global economy explain the largest fraction of the oil price fluctuations, about four times more than canonical oil supply shocks. The correlation between oil prices and the US activity varies with the type of shock.     

基于天然气客户的消费波动特征与顾客分类研究

如何有效满足连续型消费且消费量呈周期性波动的客户需要,是生产供应商急需解决的现实问题。本研究对连续型客户日消费量的时间序列数据,首次利用谱分析方法进行消费量的波动特征分析,再根据客户不同波动指标经过分层聚类分析以及判别分析,构建了判别函数方程。基于WE销售公司在江苏省的用气客户的日消费量数据进行了分析验证,研究发现,客户消费的波动特征可以通过谱分析得出的13项指标进行刻画反映,并根据这些波动指标对广大客户进行分类,以便供应商针对不同波动类别的客户采取不同的调峰手段,为供应商优化调峰方案提供分析基础,特别是根据新用户未来用气波动需求进行判别归类,有利于生产供应商提前主动地采取有效措施解决新用户的消费波动问题。     

COLLATERAL CONSTRAINTS IN A MONETARY ECONOMY

This paper reviews the role of collateral constraints in transforming small monetary shocks into large persistent output fluctuations. We do this by introducing money in the heterogeneous‐agent real economy of Kiyotaki and Moore (1997). Money enters in a cash‐in‐advance constraint and money supply is managed via open‐market operations. We find that a monetary shock generates persistent movements in aggregate output, the amplitude of which depends upon whether or not debt contracts are indexed. If only nominal contracts are traded, money shocks can trigger large output fluctuations. In this case a money expansion triggers a boom, whereas money contractions generate recessions. In contrast, if contracts are indexed then amplification is not only smaller; it can also generate the reverse results. When the possibility of default and renegotiation is considered, the model can generate asymmetric business cycles with recessions milder than booms. Finally, monetary shocks generate a highly persistent dampening cycle rather than a smoothly declining deviation. (JEL: E32, E43, E44, E52)     

What's News in Business Cycles

In the context of a dynamic, stochastic, general equilibrium model, we perform classical maximum likelihood and Bayesian estimations of the contribution of anticipated shocks to business cycles in the postwar United States. Our identification approach relies on the fact that forward‐looking agents react to anticipated changes in exogenous fundamentals before such changes materialize. It further allows us to distinguish changes in fundamentals by their anticipation horizon. We find that anticipated shocks account for about half of predicted aggregate fluctuations in output, consumption, investment, and employment.     

Sentiments

This paper develops a new theory of fluctuations—one that helps accommodate the notions of “animal spirits” and “market sentiment” in unique‐equilibrium, rational‐expectations, macroeconomic models. To this goal, we limit the communication that is embedded in a neoclassical economy by allowing trading to be random and decentralized. We then show that the business cycle may be driven by a certain type of extrinsic shocks which we call sentiments. These shocks formalize shifts in expectations of economic activity without shifts in the underlying preferences and technologies; they are akin to sunspots, but operate in unique‐equilibrium models. We further show how communication may help propagate these shocks in a way that resembles the spread of fads and rumors and that gives rise to boom‐and‐bust phenomena. We finally illustrate the quantitative potential of our insights within a variant of the RBC model.     

房价波动、住房信贷与宏观审慎政策

金融危机表明住房信贷违约可能引发系统性风险,但现有理论研究并未将住房信贷违约风险纳入分析框架。本文通过构建包含异质性房价冲击和住房信贷违约的房地产动态随机一般均衡（DSGE）模型,探究房价波动的溢出效应,同时研究宏观审慎政策对住房信贷的监管效果。基于中国的实际数据,通过模拟分析得出以下结论：房地产市场对实体经济的溢出效应主要集中在消费而不是产出和通胀,对金融系统的溢出效应要大于实体经济。采用以住房信贷扩张速度为目标的动态资本充足率监管方式能有效地控制信贷风险,短期效果更加明显。房价波动冲击和利率冲击是引起我国住房信贷波动的主要原因。     

UNINSURED COUNTERCYCLICAL RISK: AN AGGREGATION RESULT AND APPLICATION TO OPTIMAL MONETARY POLICY

We consider an incomplete markets economy with capital accumulation and endogenous labor supply. Individuals face countercyclical idiosyncratic labor and asset risk. We derive conditions under which the aggregate allocations and price system can be found by solving a representative agent problem. This result is applied to analyze the properties of an optimal monetary policy in a New Keynesian economy with uninsured countercyclical individual risk. The optimal monetary policy that emerges from our incomplete markets economy is the same as the optimal monetary policy in a representative agent model with preference shocks. When price rigidity is the only friction the optimal monetary policy calls for stabilizing the inflation rate at zero.     

POLICY WITH DISPERSED INFORMATION

Information regarding economic fundamentals is widely dispersed in society, is only imperfectly aggregated through prices or other indicators of aggregate activity, and cannot be centralized by the government or any other institution. In this paper we seek to identify policies that can improve the decentralized use of such dispersed information without requiring the government to observe this information. We show that this can be achieved by appropriately designing the contingency of taxation on ex post public information regarding the realized fundamentals and aggregate activity. When information is common (as in the Ramsey literature) or when agents have private information only about idiosyncratic shocks (as in the Mirrlees literature), the contingency on fundamentals alone suffices for efficiency. When instead agents have private information about aggregate shocks, the contingency on aggregate activity is crucial. An appropriate combination of the two contingencies permits the government to: (i) dampen the impact of noise and hence reduce non-fundamental volatility, without also dampening the impact of fundamentals; (ii) induce agents to internalize informational externalities, and hence improve the speed of social learning; (iii) restore a certain form of constrained efficiency in the decentralized use of information; and (iv) guarantee that welfare increases with the provision of any additional information. (JEL: C72, D62, D82)     

DO HOUSE PRICES DRIVE CONSUMPTION GROWTH? THE COINCIDENT CYCLES OF HOUSE PRICES AND CONSUMPTION IN THE UK

This paper uses a realistic structural lifecycle model of consumption and housing decisions to understand how data might distinguish different mechanisms that explain the correlation between house prices and consumption. The model includes price and earnings shocks estimated from data (the latter including aggregate and idiosyncratic components), and incorporates realistic features of the UK mortgage market. We simulate the model using more than 30 years of realized shocks and under counterfactual scenarios. Our results confirm the intuition of earlier studies: house price shocks should have a larger effect on the consumption of older households and earnings shocks on young households.     

e‐Integration in the Supply Chain: Barriers and Performance*

Current opinion holds that Internet‐based supply chain integration with upstream suppliers and downstream customers (called “e‐integration” in this paper) is superior to traditional ways of doing business. This proposition remains untested, however, and similarly we know little about what are the upstream, internal, and downstream barriers to implementing e‐integration. This paper empirically addressed these questions using data from a large single nation study, and found (1) a positive link between e‐integration and performance, and (2) that internal barriers impeded e‐integration more than either upstream supplier barriers or downstream customer barriers. Findings from this study contribute to our theoretical understanding of implementing change in contemporary supply chains, and have important implications for manufacturers interested in improving their supply chain's performance using the Internet.