Scandinavian Working Papers in Economics

Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

No 438: Do we need firm data to understand macroeconomic dynamics?

Michele Lenza () and Ettore Savoia ()
Additional contact information
Michele Lenza: ECB
Ettore Savoia: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

Abstract: We study the role of heterogeneity in the revenues of individual firms for euro area macro financial dynamics. To this end, we specify two models: a standard aggregate vector autoregressive model (VAR) and a functional VAR (fVAR) which also incorporates the feedback loop between the firm-level revenue distribution and aggregate variables. Our results demonstrate that the behavior of the firm-level revenue distribution plays a significant role in shaping up the dynamics of key euro area aggregate (macroeconomic and financial) variables.

Keywords: Firm-level revenues; Functional Vector Autoregressions; Heterogeneous Agent Models; Business Cycle fluctuations

JEL-codes: C11; C32; C52; C54; E22; E32

Language: English

26 pages, First version: July 1, 2024. Revised: April 1, 2026. Earlier revisions: April 1, 2026.

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