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Heterogeneous Firms in Macroeconomics (ECO-AD-HETFIRMAC)

ECO-AD-HETFIRMAC

Description

This course deals with firm heterogeneity in macroeconomics. We begin with an overview of the main empirical facts regarding the firm size distribution and firm dynamics. Then we survey quantitative macroeconomic models with heterogeneous firms, with applications to business cycles, long-run growth, and labor market outcomes such as job flows, worker flows, wage dynamics and wage dispersion. We also discuss the numerical solution techniques and how to apply models with heterogeneous firms to answer quantitative research questions.

 

Students will become familiar with macroeconomics models with heterogeneous firms, relate them to empirical findings, and use these models for policy analysis. Next to mastering the analytical properties of quantitative models, students will practice how to solve models computationally and apply them to answer quantitative research questions. They learn how to present and critically discuss a recent research paper in this research area. Students are further required to develop an original research project based on the material covered in this course.

 

Assessment:

• Problem sets (40%): There will be two problem sets whose answers will be graded. Students are encouraged to work in groups to solve them, but answers must be written up and submitted individually.

• Research proposal (paper and oral presentation, 60%): Students are expected to present a research proposals in the last class meeting (December 10). Based on the discussion of these presentations, a written research proposal of at least seven pages must be submitted by January 5, 2026. Both empirical and theoretical research proposals are welcome, as long as they relate to the literature discussed in this course. The proposal should contain (i) the motivation of a substantive research question with some references to closely related literature, and (ii) a detailed description of how this research question can be answered (including a description of the empirical method, data and/or a sketch of a model).

 

Module structure

 

WEEK 1

1.Firm size and firm growth

Gabaix (2011), Luttmer (2007), Luttmer (2011), Haltiwanger et al. (2013), Axtell (2001)

2. Modeling firm dynamics

Lucas (1978), Jovanovic (1982), Hopenhayn (1992), Hopenhayn and Rogerson (1993), Restuccia and Rogerson (2008)

WEEK 2

3. Firm dynamics and the business cycle

Carvalho and Grassi (2019), Khan and Thomas (2013), Lee and Mukoyama (2018), Samaniego (2008), Sedlácek and Sterk (2017), Terry (2017), Veracierto (2008).

4. Firms, growth and innovation

Acemoglu et al. (2018), Akcigit and Kerr (2018), Klette and Kortum (2015), Lentz and Mortensen (2008), Dürnecker et al. (2025)

WEEK 3

5. Firms and labor market dynamics

Acemoglu and Hawkins (2014), Bilal et al. (2022), Burdett and Mortensen (1998), Cahuc et al. (2006), Carrillo-Tudela et al. (2024), Elsby and Gottfries (2022), Elsby and Michaels (2013), Kaas and Kircher (2015), Menzio and Shi (2011), Postel-Vinay and Robin (2022), Smith (1999), Stole and Zwiebel (1996), Kaas et al. (2024)

WEEK 4

Presentations of research proposals

Problem Sets Correctly applying the concepts and models to address different questions. Clarity of explanations and logical arguments. Written feedback will be provided by the TA and problem set discussion during exercise classes. Suggested solutions will be uploaded to Brightspace after the submission deadlines.

Research proposal (presentation and written paper) Originality of the research question, contribution to existing literature and feasibility of the proposed research methodology. Discussions and individual feedback right after the research presentations. Feedback on the written research proposals will be shared individually.

 

Bibliography and further readings

Acemoglu, Daron and William B. Hawkins (2014), Search with multi-worker firms. Theoretical Economics, 9, 583-628.

Axtell, Robert L (2001), Zipf distribution of US firm sizes. Science, 293, 1818-1820.

Bartelsman, Eric, John Haltiwanger, and Stefano Scarpetta (2013), Cross-country differences in productivity: The role of allocation and selection. American Economic Review, 103, 305 334.

Bilal, A., Engbom, N., Mongey, S., & Violante, G. L. (2022). Firm and worker dynamics in a frictional labor market. Econometrica, 90(4), 1425-1462.

Burdett, K., & Mortensen, D. T. (1998). Wage differentials, employer size, and unemployment. International economic review, 257-273.

Cahuc, P., Postel-Vinay, F., & Robin, J. M. (2006). Wage bargaining with on-the-job search: Theory and evidence. Econometrica, 74(2), 323-364.

Carrillo-Tudela, C., Kaas, L. and Lochner, B. (2024). Matching through search channels, Working Paper.

Carvalho, V. M., & Grassi, B. (2019). Large firm dynamics and the business cycle. American Economic Review, 109(4), 1375-1425.

Davis, Steven, Jason Faberman, and John Haltiwanger (2006), The flow approach to labor markets: New data sources and micro macro links. Journal of Economic Perspectives, 20, 3 26.

Davis, Steven J, R Jason Faberman, and John Haltiwanger (2012), Labor market flows in the cross section and over time. Journal of Monetary Economics, 59, 1 18.

Dürnecker,G., Ignaszak, M., Jeun, J. and Kaas, L. (2025), Firm expectations, innovation and growth, Mimeo.

Elsby, Michael W. L. and Ryan Michaels (2013), Marginal jobs, heterogeneous firms, and unemployment flows. American Economic Journal: Macroeconomics, 5, 1 48.

Elsby, M. W., & Gottfries, A. (2022). Firm dynamics, on-the-job search, and labor market fluctuations. The Review of Economic Studies, 89(3), 1370-1419.

Gabaix, Xavier (2011), The granular origins of aggregate fluctuations. Econometrica, 79, 733 772.

Haltiwanger, John, Ron S. Jarmin, and Javier Miranda (2013), Who creates jobs? Small versus large versus young. Review of Economics and Statistics, 95, 347-361.

Hopenhayn, Hugo (1992), Entry, exit, and firm dynamics in long run equilibrium. Econometrica, 60, 1127 1150.

Hopenhayn, Hugo and Richard Rogerson (1993), Job turnover and policy evaluation: A general equilibrium analysis. Journal of Political Economy, 101, 915 938.

Jovanovic, Boyan (1982), Selection and the evolution of industry. Econometrica, 649 670.

Kaas, Leo and Philipp Kircher (2015), Efficient firm dynamics in a frictional labor market. American Economic Review, 105, 3030 60.

Kaas, Leo, Lalé, Etienne and Siassi, Nawid (2024), Job ladder and wealth dynamics in general equilibrium, Working Paper.

Khan, A., & Thomas, J. K. (2013). Credit shocks and aggregate fluctuations in an economy with production heterogeneity. Journal of Political Economy, 121(6), 1055-1107.

Lee, Yoonsoo and Toshihiko Mukoyama (2018), A model of entry, exit, and plant-level dynamics over the business cycle. Journal of Economic Dynamics and Control, 96, 1 25.

Lucas, Robert E (1978), On the size distribution of busness firms. Bell Journal of Economics, 508 523.

Luttmer, Erzo G (2007), Selection, growth, and the size distribution of firms. Quarterly Journal of Economics, 122, 1103 1144.

Luttmer, Erzo G (2011), On the mechanics of firm growth. Review of Economic Studies, 78, 1042 1068.

Menzio, G., & Shi, S. (2011). Efficient search on the job and the business cycle. Journal of Political Economy, 119(3), 468-510.

Postel–Vinay, F., & Robin, J. M. (2002). Equilibrium wage dispersion with worker and employer heterogeneity. Econometrica, 70(6), 2295-2350.

Restuccia, Diego and Richard Rogerson (2008), Policy distortions and aggregate productivity with heterogeneous establishments. Review of Economic Dynamics, 11, 707 720.

Samaniego, Roberto M (2008), Entry, exit and business cycles in a general equilibrium model. Review of Economic Dynamics, 11, 529 541.

Sedlácek, Petr and Vincent Sterk (2017), The growth potential of startups over the business cycle. American Economic Review, 107, 3182 3210.

Smith, E. (1999), Search, concave production and optimal firm size. Review of Economic Dynamics, 2, 456 471.

Stole, L. and J. Zwiebel (1996), Intra firm bargaining under non binding contracts. Review of Economic Studies, 63, 375 410.

Terry, Stephen J (2017), Alternative methods for solving heterogeneous firm models. Journal of Money, Credit and Banking, 49, 1081 1111.

Veracierto, Marcelo (2008), Firing costs and business cycle uctuations. International Economic Review, 49, 1 39.

 

 

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