Aggregate Uncertainty and the Micro-Dynamics of Firms

50 Pages Posted: 1 Jun 2020 Last revised: 9 Nov 2020

Date Written: May 3, 2020


Using firm level micro-data, I find evidence that firms with lower growth prospects are more sensitive to aggregate shocks. I interpret these findings using a model of demand accumulation and endogenous entry and exit decisions, which I then estimate on French data. The resulting cyclical dynamics of firms provide an explanation for the observed counter-cyclical dispersion in firms' growth rates. They suggest that cyclical dispersion is the result of a pre-existing and persistent characteristic of the firm and caution against its use as a proxy for time-varying uncertainty. The estimated negative correlation between a firm's sensitivity to aggregate shocks and its expected future growth rate is shown to have important consequences for the cyclical characteristics of entering and exiting firms. The quantitative model suggests that this compositional effect is sizeable and equivalent to around 10.5% of the drop in aggregate employment between 2008 and 2009.

Keywords: Firm Dynamics, Uncertainty, Cyclical Dispersion, Employment

JEL Classification: E32, E24, L25

Suggested Citation

Dalvit, Nicolò and Dalvit, Nicolò, Aggregate Uncertainty and the Micro-Dynamics of Firms (May 3, 2020). Available at SSRN: or

Nicolò Dalvit (Contact Author)

Sciences Po ( email )

28, rue des Saints-Pères
Paris, Paris 75007

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics