Can Idiosyncratic Shocks to Firms Explain Macroeconomic Growth and Fluctuations in Korea

This paper examines whether idiosyncratic firm-level shocks can explain an important part of aggregate movements as in Gabaix (2011). Its findings show that, different from the case in the United States, the idiosyncratic movements of the largest 20 firms in Korea appear to explain up to 18% of the variations in output growth between 1981 and 2011. In addition, they are also useful in explaining the cyclical component of GDP. It is found that the top three firms’ movements account for 58% of the cyclical component of GDP during the period from 2001q1 to 2012q3. This empirical evidence suggests that the granular hypothesis also holds in Korea.