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Nonlinear Firm Dynamics
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 ...