International Competition and Granular Fluctuations
Jack Rossbach
December 2017

Abstract:
This paper investigates the role of international competition in amplifying granular fluctuations.  I embed granularity, through a finite set of firms, in a multi-industry general equilibrium environment featuring heterogeneous firms and international trade.  When firms compete internationally, shocks to large firms lead to a reshuffling of industry-level market shares across countries, which amplifies the macroeconomic impact of idiosyncratic shocks.  I develop a tractable, analytic characterization of the volatility of GDP growth in my environment, which I calibrate using firm level data.  I show that the model does well in matching relative differences in GDP volatility across OECD countries, accounting for roughly 40 percent of GDP volatility.