Shock transmission in granular economies : impact of pass-through effects of idiosyncratic microshocks to the aggregate

Cijan, Anamarija (author), Damijan, Jože (author), Kostevc, Črt (author)

This paper studies the importance of shocks to the largest firms on the aggregate output. Using firm-level data on eight European countries (2006--2019), we find that shocks to the largest firms explain an important part of aggregate fluctuations. Our paper brings several novelties. Firstly, in addition to the aggregate level, we extend the analysis of the transmission of firm-level shocks to study the shocks at the sectoral level. Secondly, we provide a novel measurement for demand-side shocks within granularity. We show that idiosyncratic shocks affecting the largest 20 firms can explain almost half of the output volatility, which is consistent with Gabaix (2011). Moreover, demand-side shocks contribute a greater share to this volatility compared to supply-side shocks. Finally, we show that the smaller the sample of the largest firms, the larger the propagation effect of the shocks to GDP. This suggests that a few large firms drive a large part of the aggregate volatility, while volatility of other larger firms balances out on average.

• Language: English
• Keywords: management, supply, demand, aggregate curve, business cycle, supply-side shocks, demand-side shocks, aggregate fluctuations, granular residual
• Work type: Article
• Typology: 1.01 - Original Scientific Article
• Organization: EF - School of Economics and Business
• Publication status: Published
• Publication version: Version of Record
• Year: 2025
• Number of pages: Str. 199-220
• Numbering: Vol. 27, iss. 4, article no. 2
• PID: 20.500.12556/RUL-176672
• UDC: 658
• ISSN on article: 2335-4216
• DOI: 10.15458/2335-4216.1361
• COBISS.SI-ID: 259614979
• Publication date in RUL: 08.12.2025

Record is a part of a journal

• Title: Economic and business review
• Publisher: Univerza v Ljubljani, Ekonomska fakulteta
• ISSN: 2335-4216
• COBISS.SI-ID: 268649216

Licences

• License: CC BY 4.0, Creative Commons Attribution 4.0 International
• Link: http://creativecommons.org/licenses/by/4.0/
• Description: This is the standard Creative Commons license that gives others maximum freedom to do what they want with the work as long as they credit the author.

Secondary language

• Language: Slovenian
• Keywords: management, cikli, ponudba, povpraševanje, agregatna krivulja