Consumer Behavior and Firm Volatility
Munro, David. "Consumer Behavior and Firm Volatility." Journal of Money, Credit, and Banking, Forthcoming.
Posted: 22 Mar 2021
Date Written: Jan 10, 2021
Abstract
Dispersion in firm-level growth rates rises during recessions. To date, this has been explained through mechanisms on the firms’ side of the economy. In this paper I show that countercyclical dispersion can arise from changes on the demand side of the economy. Using retail data I find that during recessions demand elasticity rises, the dispersion of firms’ growth rates increases, and this increase is larger in markets where the change in consumer behavior is the strongest. I develop a business cycle model with heterogeneous firms and frictions in product markets that highlights the relationship between consumer behavior and firm volatility.
Keywords: countercyclical dispersion; volatility; demand elasticity.
JEL Classification: E32, E21
Suggested Citation: Suggested Citation