Great Moderation at the Firm Level? Unconditional vs. Conditional Output Volatility

43 Pages Posted: 13 Jun 2008

See all articles by Claudia M. Buch

Claudia M. Buch

Deutsche Bundesbank

Jörg Döpke

Deutsche Bundesbank

Kerstin Stahn

Deutsche Bundesbank

Date Written: June 2008

Abstract

Aggregated output in industrialized countries has become less volatile over the past decades. Whether this "Great Moderation" can be found in firm level data as well remains disputed. We study the evolution of firm level output volatility using a balanced panel dataset on German firms that covers 35 years (1971-2005) and about 1,500 firms per year. In contrast to earlier work using firm level data, we use the multifactor residual model proposed by Pesaran (2006) to isolate the idiosyncratic component of firms' real sales growth from macroeconomic developments. Our paper has three main findings. First, time trends in unconditional firm level and aggregated output volatility in Germany are similar. There has been a long-run downward trend, which was interrupted by the unification period. Second, the conditional, idiosyncratic firm level volatility does not exhibit a downward trend. If anything idiosyncratic volatility has been on a slow trend rise. Third, we find evidence of a positive link between growth and volatility at the firm level.

Keywords: firm level volatility, Great Moderation, multifactor residual model

JEL Classification: E32, D21

Suggested Citation

Buch, Claudia M. and Döpke, Jörg and Stahn, Kerstin, Great Moderation at the Firm Level? Unconditional vs. Conditional Output Volatility (June 2008). CESifo Working Paper Series No. 2324, Available at SSRN: https://ssrn.com/abstract=1145144 or http://dx.doi.org/10.2139/ssrn.1145144

Claudia M. Buch (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Jörg Döpke

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany
+49-069-9566-3051 (Phone)

Kerstin Stahn

Deutsche Bundesbank

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
62
Abstract Views
986
Rank
630,179
PlumX Metrics