Skip to main content

2004, No. 7
Posted 2004-03-02

Volatile Firms, Stable Economy

by Hui Guo

Competition between firms magnifies the effects of idiosyncratic productivity shocks, which helps explain the rise in firm volatility. At the same time, competitive pressures could induce firms to increase the frequency of their price adjustments, making the overall economy more resilient to aggregate demand shocks.