The Cross Sectional Dynamics of the Us Business Cycle : 1950-1999

Modern interest in business cycles has focused on the co-movements and correlations in the major macroeconomic aggregates. In this paper we offer another dimension to business cycle analysis which looks at the cross sectional distribution of the growth rate of gross sales by US quoted companies from 1950 to 1999. We detect correlations between aggregate business cycle fluctuations and the higher moments of the cross sectional distribution. Using both weighted and unweighted rates of change in sales, we find a significant negative correlation between the aggregate rate of growth of GDP and the cross sectional variance and skewness of gross sales. On the other hand there is positive correlation, at business cycle frequencies with kurtosis. In order to explore this further we turn to the dynamic evolution of firms and analyse the sensitivity of growth rates to aggregate shocks conditioning on firm size. The results suggest that despite considerable heterogeneity macroeconomic shocks have pervasive effects that are, however, more pronounced for firms in the middle range of growth. This has implications for both macro and industrial economics