A growing body of evidence is emerging that economies worldwide are populated by a few large companies that coexist with many smaller companies. The presence of such big 'grains' means a heavy right tail for the firm size distribution that follows a power law, which contrasts with the most accepted hypothesis in macroeconomics that the activity of one individual company matters very little for the economy as a whole.
Current macroeconomics assumes that the activity of millions of firms tends to cancel each other out so that the impact of the individual company on the aggregate is negligible. This fact is the very justification for the focus on monetary and fiscal policies. However, the assumption of a smooth continuum of firms breaks down if the distribution of firm sizes is heavy-tailed.
Moreover, there is also evidence that the structure of the input-output network is asymmetric. All this empirical research paved the way to the 'granularity' hypothesis, which means idiosyncratic shocks at the firm level can have an aggregate impact. Firm-level shocks do not cancel out and end up affecting the business cycle. So far, worldwide data cannot reject the hypothesis of granularity.
The research on granularity provides a unique opportunity window for Econophysics to explain the business cycle, which is an issue at the heart of macroeconomics. Moreover, there is also exciting new research on granularity in particular markets, such as the banking and labor markets.
This Research Topic aims to intensify the dialogue with macroeconomists on granularity. We welcome original research and review articles relating to this theme, and potential topics include but are not limited to the following:
- Evidence of the granularity hypothesis for extra samples of countries.
- Granularity in particular markets.
- The granular size of economies.
- Further evidence of power laws in firm-size distributions.
- Asymmetries in input-output tables.
- Contrasting the granular hypothesis with DSGE models.
A growing body of evidence is emerging that economies worldwide are populated by a few large companies that coexist with many smaller companies. The presence of such big 'grains' means a heavy right tail for the firm size distribution that follows a power law, which contrasts with the most accepted hypothesis in macroeconomics that the activity of one individual company matters very little for the economy as a whole.
Current macroeconomics assumes that the activity of millions of firms tends to cancel each other out so that the impact of the individual company on the aggregate is negligible. This fact is the very justification for the focus on monetary and fiscal policies. However, the assumption of a smooth continuum of firms breaks down if the distribution of firm sizes is heavy-tailed.
Moreover, there is also evidence that the structure of the input-output network is asymmetric. All this empirical research paved the way to the 'granularity' hypothesis, which means idiosyncratic shocks at the firm level can have an aggregate impact. Firm-level shocks do not cancel out and end up affecting the business cycle. So far, worldwide data cannot reject the hypothesis of granularity.
The research on granularity provides a unique opportunity window for Econophysics to explain the business cycle, which is an issue at the heart of macroeconomics. Moreover, there is also exciting new research on granularity in particular markets, such as the banking and labor markets.
This Research Topic aims to intensify the dialogue with macroeconomists on granularity. We welcome original research and review articles relating to this theme, and potential topics include but are not limited to the following:
- Evidence of the granularity hypothesis for extra samples of countries.
- Granularity in particular markets.
- The granular size of economies.
- Further evidence of power laws in firm-size distributions.
- Asymmetries in input-output tables.
- Contrasting the granular hypothesis with DSGE models.
