Debunking the granular origins of aggregate fluctuations: from real business cycles back to Keynes

Giovanni Dosi (1) , Mauro Napoletano (2, 3, 4, 1) , Andrea Roventini (2, 5) , Tania Treibich (2, 5, 6)

1 LEM - Laboratory of Economics and Management
2 OFCE - Observatoire français des conjonctures économiques (Sciences Po)
3 SKEMA Business School
4 UCA - Université Côte d'Azur
5 LEM - Laboratory of Economics and Management
6 Maastricht University [Maastricht]

In this work we study the granular origins of business cycles and their possible underlying drivers. As shown by Gabaix (Econometrica 79:733–772, 2011), the skewed nature of firm size distributions implies that idiosyncratic (and independent) firm-level shocks may account for a significant portion of aggregate volatility. Yet, we question the original view grounded on “supply granularity”, as proxied by productivity growth shocks – in line with the Real Business Cycle framework–, and we provide empirical evidence of a “demand granularity”, based on investment growth shocks instead. The role of demand in explaining aggregate fluctuations is further corroborated by means of a macroeconomic Agent-Based Model of the “Schumpeter meeting Keynes” family Dosi et al. (J Econ Dyn Control 52:166–189, 2015). Indeed, the investigation of the possible microfoundation of RBC has led us to the identification of a sort of microfounded Keynesian multiplier.

Keywords: Business cycles; Granular residual; Granularity hypothesis; Agent-based models; Firm dynamics; Productivity growth; Investment growth

Domains: Economics and Finance

Giovanni Dosi, Mauro Napoletano, Andrea Roventini, Tania Treibich. Debunking the granular origins of aggregate fluctuations: from real business cycles back to Keynes. Journal of Evolutionary Economics, 2019, 29 (1), pp.67-90. ⟨10.1007/s00191-018-0590-4⟩. ⟨hal-02557845⟩