Friday 16 February 2018

Microeconomic shocks drive aggregate fluctuations in Europe

a column by Christian Ebeke and Kodjovi Eklou for VOX: CEPR’s Policy Portal

The economics profession has generally explained large movements in macroeconomic aggregates such as GDP or employment by shocks to other aggregates. This is in part due to the difficulty of translating micro or localised shocks into macro-relevant ‘news’. This column argues that idiosyncratic shocks at the biggest European firms are behind 40% percent of aggregate GDP fluctuations in Europe. These results have implications for the effectiveness of traditional demand-side policies in the fine-tuning of granular economies.

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