Scandinavian Working Papers in Economics

Working Paper Series,
IFAU - Institute for Evaluation of Labour Market and Education Policy

No 2023:1: Dispersion over the business cycle: passthrough, productivity and demand?

Mikael Carlsson (), Alex Clymo () and Knut-Eric Joslin ()
Additional contact information
Mikael Carlsson: Uppsala universitet, Postal: Nationalekonomiska institutionen, Uppsala universitet
Alex Clymo: University of Essex, Postal: University of Essex.
Knut-Eric Joslin: Kristiania University College, Postal: Kirkegata 24-26, 0153 Oslo

Abstract: We characterize the dispersion of firm-level productivity and demand shocks over the business cycle using Swedish microdata including prices and analyse the consequences for firms and the aggregate economy. Demand dispersion increases by more than productivity dispersion in recessions. Productivity shocks pass through incompletely to prices and have limited effect on sales dispersion. Demand shocks explain most of the variation in sales dispersion. In a heterogeneous-firm model matching the micro facts, demand dispersion has unambiguously negative effects on output via increased uncertainty and a “wait and see” channel. Productivity dispersion does not generate “wait and see” effects, but affects output negatively by inducing markup dispersion.

Keywords: demand estimation; productivity; variable markups; business cycles; dispersion; uncertainty; passthrough; adjustment costs

JEL-codes: D21; D22; D81; E32; L11

Language: English

115 pages, January 19, 2023

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