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Firm Dynamics and the Origins of Aggregate Fluctuations
What drives aggregate fluctuations? I test the granular hypothesis, according to which the largest firms in the economy drive aggregate dynamics, by estimating a dynamic factor model with firm-level data and controlling for the propagation of firm-level shocks using multi-firm growth model. Each time series, the growth rate of sales of a specific firm, is decomposed in an unobserved common macroeconomic component and in a residual that I interpret as an idiosyncratic firm-level component. The empirical results suggest that, once I control for aggregate shocks, idiosyncratic shocks do not ...
On the U.S. Firm and Establishment Size Distributions
This paper revisits the empirical evidence on the nature of firm and establishment size distributions in the United States using the Longitudinal Business Database (LBD), a confidential Census Bureau panel of all non-farm private firms and establishments with at least one employee. We establish five stylized facts that are relevant for the extent of granularity and the nature of growth in the U.S. economy: (1) with an estimated shape parameter significantly below 1, the best-fitting Pareto distribution substantially differs from Zipf's law for both firms and establishments; (2) a lognormal ...
A state-dependent model for inflation forecasting
We develop a parsimonious bivariate model of inflation and unemployment that allows for persistent variation in trend inflation and the NAIRU. The model, which consists of five unobserved components (including the trends) with stochastic volatility, implies a time-varying VAR for changes in the rates of inflation and unemployment. The implied backwards-looking Phillips curve has a time-varying slope that is steeper in the 1970s than in the 1990s. Pseudo out-of-sample forecasting experiments indicate improvements upon univariate benchmarks. Since 2008, the implied Phillips curve has become ...
Which Output Gap Estimates Are Stable in Real Time and Why?
Output gaps that are estimated in real time can differ substantially from those estimated after the fact. We aim to understand the real-time instability of output gap estimates by comparing a suite of reduced-form models. We propose a new statistical decomposition and find that including a Okun’s law relationship improves real-time stability by alleviating the end-point problem. Models that include the unemployment rate also produce output gaps with relevant economic content. However, we find that no model of the output gap is clearly superior to the others along each metric we consider.
Real-time Historical Estimates of the Output Gap
The purpose of this note is to highlight the recent availability of an expanded set of historical data of the staff's estimates of the real-time output gap at the Real-Time Data Research Center of the Federal Reserve Bank of Philadelphia.