On the determination of the granular size of the economy

Blanco-Arroyo, Omar and Ruiz-Buforn, Alba and Vidal-Tomás, David and Alfarano, Simone (2018): On the determination of the granular size of the economy.

Abstract

Introducing the granular hypothesis, Gabaix (2011) shows that the idiosyncratic shocks of a few “granular” firms account for a significant fraction of aggregate fluctuations of the US business cycle. In the literature, however, the question of how many are the granular firms in an economy is left unanswered. Using Spanish data, we propose a novel methodology to calibrate the granular size of the economy, i.e. the number of granular firms.

• Item Type: MPRA Paper
• Language: English
• Keywords: Business cycle, idiosyncratic shocks, productivity, granular residual, granularity index
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C20 - General; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles

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