DP16824 Idiosyncratic Shocks and Aggregate Fluctuations in an Emerging Market

Author(s): Francesco Grigoli, Emiliano Luttini, Damiano Sandri
Publication Date: December 2021
Keyword(s): Business cycle, Firm-Level Shocks, granularity, propagation
JEL(s): E32, F41
Programme Areas: International Trade and Regional Economics, International Macroeconomics and Finance, Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16824

This paper provides the first assessment of the contribution of idiosyncratic shocks to aggregate fluctuations in an emerging market using confidential data on the universe of Chilean firms. We find that idiosyncratic shocks account for more than 40 percent of the volatility of aggregate sales. Although quite large, this contribution is smaller than documented in previous studies based on advanced economies, despite a higher degree of market concentration in Chile. We show that this finding is explained by larger firms being less volatile and by weaker propagation effects across Chilean firms.