Granular Sources of the Italian Business Cycle

52 Pages Posted: 9 Jul 2019

Date Written: September 27, 2018


A recent strand of literature has investigated the granular sources of the business cycle, i.e. to what extent firm-level dynamics have an impact on aggregate fluctuations. From a conceptual point of view, in the presence of fat-tailed firm-size distributions, shocks to large firms may not average out and may then have a direct effect on aggregate fluctuations; in addition, firm-to-firm linkages can propagate shocks to individual firms, leading to movements at the aggregate level. Using Cerved and INPS data, we test the granular hypothesis on a large sample of Italian firms, covering the period 1999-2014. Idiosyncratic Total Factor Productivity (TFP) shocks are found to explain around 30 per cent of aggregate TFP volatility; furthermore, the contribution of these linkages to firm-specific aggregate volatility is more important than that of the direct effect, especially for the manufacturing sector.

Keywords: aggregate fluctuations, firm-level dynamics, productivity

JEL Classification: D24, E32, L25

Suggested Citation

Gnocato, Nicolò and Rondinelli, Concetta, Granular Sources of the Italian Business Cycle (September 27, 2018). Bank of Italy Temi di Discussione (Working Paper) No. 1190, September 2018, Available at SSRN: or

Nicolò Gnocato

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136

Concetta Rondinelli (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184

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