The economic literature has recognized the role of ‘granular’ sources of the business cycle, showing that aggregate fluctuations may also derive from idiosyncratic shocks hitting single enterprises: this can happen both in a direct manner, in the case of large production units, and in an indirect one, if shocks propagate from single enterprises to the rest of the economy through connections stemming from the sourcing of production inputs. The granular hypothesis is tested using Italian data
The results indicate that idiosyncratic total factor productivity (TFP) shocks are able to explain about 30 per cent of aggregate TFP volatility; moreover, the ‘linkages’ channel is more important (especially for the manufacturing sector) than the ‘direct’ one, whose importance nevertheless increased during the global financial and sovereign debt crises.
