Business Cycle Fluctuations and Granular Behavior: an Empirical Analysis vs. the Agent-Based Approach

Abstract

This thesis aims to quantify the granular size of an economy, i.e., the number of granular firms. Empirically, we find that the contribution of idiosyncratic shocks to gross domestic product (GDP) fluctuations is attributed to a very small number of large firms. From a certain number of firms onwards the additional contribution plateaus. Theoretically, we find that this behavior can be explained by the share of economic activity commanded by the largest firm, the volatility of the largest firm with respect to GDP volatility and two summary statistics for large firm dynamics: the tail index of firm size distribution and the size-volatility elasticity. Finally, we use an agent-based model to study in detail how this behavior emerges.