A1144
Title: On the need of firm data to understand macroeconomic dynamics
Authors: Ettore Savoia - Riksbank (Sweden)
Michele Lenza - European Central Bank (Germany) [presenting]
Abstract: The role of heterogeneity in the revenues of individual firms for euro area macroeconomic dynamics is studied. To this end, two models are specified: a standard aggregate vector autoregressive model (VAR) and a heterogeneous VAR (HVAR). The VAR model includes only aggregate data, while the HVAR model also incorporates the feedback loop between firms' revenue distribution and aggregate variables. The results demonstrate that the behavior of the firms' revenue distribution plays a significant role in explaining the dynamics of key euro area macroeconomic variables.
