Skewed Business Cycles

Using US Census and Compustat firm panel data, we show that the skewness of four measures — the growth rate of sales, employment, productivity and market value — are robustly cyclical. All four measures display a large negative left tail during recessions and a large positive right tail during expansions. We also see procyclical skewness of these four growth measures across US industries and over 52 countries. Using a standard firm dynamics model with adjustment-costs, we argue these four measures show that recessions are a combination of a negative first-moment mean shock, a positive second-moment uncertainty shock, and a negative third-moment skewness shock to the driving process. Modeling recessions as this multi-moment shock makes it easier to explain large recessions while also fitting micro-data.

Working Paper