A Granular View of the Australian Business Cycle

We provide evidence supporting the hypothesis that idiosyncratic firm‐level shocks are important drivers of the Australian business cycle (granular hypothesis). We first document that the distribution of firm size in Australia is substantially asymmetric and follows a power‐law distribution with a l...

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Bibliographic Details
Published inThe Economic record Vol. 95; no. 311; pp. 407 - 424
Main Authors Miranda‐Pinto, Jorge, Shen, Yuanting
Format Journal Article
LanguageEnglish
Published Richmond Blackwell Publishing Ltd 01.12.2019
Subjects
Business cycles
Companies
Economic models
GDP
Gross Domestic Product
Hypotheses
Power
Productivity
Transportation
Australia
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Summary:We provide evidence supporting the hypothesis that idiosyncratic firm‐level shocks are important drivers of the Australian business cycle (granular hypothesis). We first document that the distribution of firm size in Australia is substantially asymmetric and follows a power‐law distribution with a long right tail. We then show that labour productivity shocks to the largest non‐financial firms in Australia account for about 20–40 per cent of the variation in Australian GDP growth over the period 2000–18. Besides energy sector firms, firms in the construction, transportation and consumer services sectors appear to be relevant drivers of GDP growth.
Bibliography:We would like to thank Begoña Dominguez, Ian King, Gianni La Cava, and Wang Tat Lai for helpful suggestions. We would also like to thank Juan Olaya‐Agudelo for excellent research assistance and Benjamin Beckers and Peter Tulip for sharing their data on monetary policy shocks. Finally, we wish to thank the two anonymous referees for their constructive and detailed comments. All errors are ours.
ISSN:0013-0249
1475-4932
DOI:10.1111/1475-4932.12495