Monopolistically Skewed Business Cycles
We show that the cross-sectional distribution of firm growth rates changes shape over the business cycle: it is right-skewed in booms, left-skewed in recessions, and these swings are more pronounced for larger firms. We call this the size gradient of skewness. We show that one way of explaining this pattern is through a parsimonious demand-side framework in which market power maps symmetric shocks into skewed growth outcomes. Stronger market power implies more concave responses and thus greater skewness. Countercyclical variance — or equivalently heterogeneous exposures to aggregate impulses — then generates the procyclical, size-dependent skewness we observe. Consistent with this mech- anism, impulse responses to aggregate shocks show that growth and skewness move in tandem, with the skewness response concentrated among large firms. The results imply that large firms amplify cyclical asymmetry through market power, and that outcome-based policies risk responding to distributional patterns that reflect propagation rather than the shocks themselves.
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