Idiosyncratic Shocks and Aggregate Fluctuations in an Emerging Market
IMF Working Papers, December 10, 2021
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- Idiosyncratic Shocks and Aggregate Fluctuations in an Emerging Market
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Bibliographic details
- Authors: Francesco Grigoli, Emiliano Luttini, Damiano Sandri
- Published: December 10, 2021
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781616354893.001
Overview
- Authors: Francesco Grigoli, Emiliano Luttini, Damiano Sandri
- Publication: IMF Working Papers, Working Paper No. 2021/289
- Date: December 10, 2021
- Pages: 20
- DOI: https://doi.org/10.5089/9781616354893.001
- ISBN: 9781616354893
- ISSN: 1018-5941
Main findings
- Idiosyncratic shocks account for more than 40 percent of the volatility of aggregate sales in the studied emerging market.
- The contribution of idiosyncratic shocks to aggregate volatility in this emerging market is smaller than documented in previous studies based on advanced economies.
- Despite a higher degree of market concentration in Chile, the smaller contribution is explained by:
- Larger firms being less volatile.
- Weaker propagation effects across Chilean firms.
Method and data
- The paper provides the first assessment of the contribution of idiosyncratic shocks to aggregate fluctuations in an emerging market using confidential data on the universe of Chilean firms.
- Analysis leverages firm-level data, including firm-destination sale series and firm-level shocks, to evaluate granularity and propagation mechanisms.
Implications and interpretation
- High market concentration alone does not imply larger aggregate volatility from idiosyncratic shocks when large firms exhibit lower volatility.
- Weaker interfirm propagation of shocks can meaningfully reduce the aggregate impact of idiosyncratic disturbances in an emerging market context.
Subjects and keywords
- Subjects: Economic sectors, Emerging and frontier financial markets, Exports, Financial markets, International trade, Manufacturing
- Keywords: aggregate fluctuation, assessment of the contribution, Business cycle, Emerging and frontier financial markets, emerging markets, Exports, firm-destination sale series, firm-level shocks, granularity, idiosyncratic shock, Manufacturing, market concentration, propagation
Source: IMF Working Paper No. 2021/289 — "Idiosyncratic Shocks and Aggregate Fluctuations in an Emerging Market" by Francesco Grigoli, Emiliano Luttini, and Damiano Sandri (December 10, 2021).
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