This paper shows that aggregation over heterogeneous firms, which are subject to temporary technology shocks, will lead to long memory and nonlinearities. We start from microfoundations, using standard RBC model of monopolistic competition. We then derive the fundamental intertemporal...

This paper shows that the behaviour of an otherwise conventional model of real business cycles (RBCs) in which heterogeneous individual firms are subject to temporary technology shocks will be characterised by long memory and nonlinearity. We start from microfoundations, using a standard RBC...