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On the macroeconomic effects of heterogeneous productivity shocks

Author

Listed:
  • Jensen Christian

    (Department of Economics, University of South Carolina, 1014 Greene Street, SC 29208, Columbia)

Abstract
The conventional wisdom that producer heterogeneity washes out, and is therefore irrelevant for the aggregate economy, does not apply when producers compete monopolistically. Despite this, the effects of such heterogeneity can be reproduced with an appropriately redefined representative-agent framework where the equilibrium values of aggregates are expressed in terms of the moment generating function of the distribution of heterogeneity, or its asymptotic distribution. Increased heterogeneity raises aggregate productivity and production, more so the fiercer competition is. We propose a framework where the entire distribution of heterogeneity matters, yet computationally requires no more than a representative-agent model.

Suggested Citation

  • Jensen Christian, 2016. "On the macroeconomic effects of heterogeneous productivity shocks," The B.E. Journal of Macroeconomics, De Gruyter, vol. 16(1), pages 1-23, January.
    • Handle: RePEc:bpj:bejmac:v:16:y:2016:i:1:p:1-23:n:2
    DOI: 10.1515/bejm-2013-0160
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    References listed on IDEAS

    as
    1. Miao, Jianjun, 2006. "Competitive equilibria of economies with a continuum of consumers and aggregate shocks," Journal of Economic Theory, Elsevier, vol. 128(1), pages 274-298, May.
    2. Gian Luca Clementi & Berardino Palazzo, 2016. "Entry, Exit, Firm Dynamics, and Aggregate Fluctuations," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(3), pages 1-41, July.
    3. Kyoji Fukao & Hyeog Ug Kwon, 2006. "Why Did Japan'S Tfp Growth Slow Down In The Lost Decade? An Empirical Analysis Based On Firm‐Level Data Of Manufacturing Firms," The Japanese Economic Review, Japanese Economic Association, vol. 57(2), pages 195-228, June.
    4. Aubhik Khan & Julia K. Thomas, 2008. "Idiosyncratic Shocks and the Role of Nonconvexities in Plant and Aggregate Investment Dynamics," Econometrica, Econometric Society, vol. 76(2), pages 395-436, March.
    5. Matthias Kehrig, 2011. "The Cyclicality of Productivity Dispersion," 2011 Meeting Papers 484, Society for Economic Dynamics.
    6. Yoonsoo Lee, 2005. "The importance of reallocations in cyclical productivity and returns to scale: evidence from plant-level data," Working Papers (Old Series) 0509, Federal Reserve Bank of Cleveland.
    7. Russell W. Cooper & Immo Schott, 2023. "Capital reallocation and the cyclicality of aggregate productivity," Quantitative Economics, Econometric Society, vol. 14(4), pages 1337-1365, November.
    8. Eric J. Bartelsman & Zoltan Wolf, 2014. "Forecasting Aggregate Productivity Using Information from Firm-Level Data," The Review of Economics and Statistics, MIT Press, vol. 96(4), pages 745-755, October.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    aggregate total factor productivity; aggregation; idiosyncratic shocks; monopolistic competition; producer heterogeneity;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production

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