2018/19 | LEM Working Paper Series | ||||||||||||||||
Debunking the Granular Origins of Aggregate Fluctuations: From Real Business Cycles back to Keynes |
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Giovanni Dosi, Mauro Napoletano, Andrea Roventini, Tania Treibich |
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Keywords | |||||||||||||||||
business cycles, granular residual, granularity hypothesis, agent-based models, firm dynamics, productivity growth, investment growth
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JEL Classifications | |||||||||||||||||
C63, E12, E22, E32, O4
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Abstract | |||||||||||||||||
In this work we study the granular origins of business cycles and
their possible underlying drivers. As shown by Gabaix (2011), the
skewed nature of firm size distributions implies that idiosyncratic
(and independent) firm-level shocks may account for a significant
portion of aggregate volatility. Yet, we question the original view
grounded on “supply granularity”, as proxied by productivity growth
shocks – in line with the Real Business Cycle framework–, and we
provide empirical evidence of a “demand granularity”, based on
investment growth shocks instead. The role of demand in explaining
aggregate fluctuations is further corroborated by means of a
macroeconomic Agent-Based Model of the “Schumpeter meeting Keynes”
family (Dosi et al., 2015). Indeed, the investigation of the possible
microfoundation of RBC has led us to the identification of a sort of
microfounded Keynesian multiplier.
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