Aggregate fluctuations and the effect of large corporations: Evidence from Finnish monthly data

We investigate whether the granular hypothesis holds for the Finnish economy. In particular, we test if a sizable share of macroeconomic fluctuations is generated by firm-specific shocks to sales and productivity. We examine monthly firm-level data and find that the idiosyncratic shocks affecting large corporations explain around a third of business cycle fluctuations. This fact holds true both when we use the cross-sectional averages of sales and the estimated common factors, to control for common shocks. Moreover, we observe that the largest four corporations are the main drivers of this result. Finally, we detect a clear break in this relationship coinciding with the Great Recession. In particular, from 2010 onward the firm-level shocks lose their explanatory power. The findings of this paper point toward the importance of studying the granular hypothesis in a dynamic context, taking into account the possibility of breaks.