Dispersion over the business cycle: passthrough, productivity and demand?

Published: 19 January 2023

Author: Mikael Carlsson, And Alex Clymo, And Knut-Eric Joslin, And

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.


IFAU Working paper 2023:1 ”Dispersion over the business cycle: passthrough, productivity, and demand?” is written by Mikael Carlsson at Uppsala universitet, Alex Clymo at University of Essex and Knut-Eric Joslin at Kristiania University College.For further information, please contact Mikael Carlsson: mikael.carlsson@nek.uu.se