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Ownership Networks and Aggregate Volatility

76 Pages Posted: 1 May 2015  

Lorenzo Burlon

Bank of Italy

Date Written: March 27, 2015


We study how aggregate volatility is influenced by the propagation of idiosyncratic shocks across firms through the network of ownership relations. We use detailed data on cross-holdings as well as the relevant balance sheet information for almost the entire universe of Italian limited liability firms over the period 2005-2013. We first document that the ownership network matters for the correlation of firms' sales. Then, we construct a model where firms are linked through ownership relations and have limited access to credit markets. We characterize the aspects of the network structure that are important for the dynamics of the economy. A calibration to the key features of the Italian economy shows that the volatility implied by the model may account for a sizeable percentage of actual GDP fluctuations. Lastly, we conduct a counterfactual exercise to isolate the role played by the network structure itself in the propagation of idiosyncratic shocks at the aggregate level.

Keywords: ownership networks, firms, financial frictions, business cycles

JEL Classification: E32, C68, D58

Suggested Citation

Burlon, Lorenzo, Ownership Networks and Aggregate Volatility (March 27, 2015). Bank of Italy Temi di Discussione (Working Paper) No. 1004. Available at SSRN: or

Lorenzo Burlon (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184

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