Report

Nonlinear Firm Dynamics

Abstract: This paper presents empirical evidence on the nature of idiosyncratic shocks to firms and discusses its role for firm behavior and aggregate fluctuations. We document that firm-level sales and productivity are hit by heavy-tailed shocks, mostly unexplained by observable factors, and follow a nonlinear stochastic process, thus departing from the linear AR(1). We estimate a state-of-the-art model to flexibly capture the rich dynamics uncovered in the data and characterize the drivers of nonlinear persistence and non-Gaussian shocks. We show the implications of these features for the volatility and persistence of micro-originated (granular) aggregate fluctuations.

JEL Classification: D22; E23; E32;

https://doi.org/10.59576/sr.1088

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2024-03-01

Number: 1088

Note: Revised June 2026.