Economists almost routinely postulate company-specific shocks that wash out in aggregation, leaving no effects on the macro economy. Underlying this thinking is a set of companies (or ‘firms’), none of which, taken separately or together, is big enough to affect the macro economy, and which face uncorrelated idiosyncratic shocks that cancel out in aggregation. This logic implicitly constrains the size distribution of firm to the extent that no aggregate effects emerge from individual firms.
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There is an ongoing debate among economists and policymakers on the likely effects of persistently low interest rates on the overall economy and in particular on the optimal timing for the central bank to exit from the low interest rate regime. Many have actually suggested that the Federal Reserve kept short-term interest rates too low for too long in the early years of the new millennium, thus contributing to the credit boom that developed prior to the financial collapse of 2008 and the economic bust that followed.
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The growing global weight of the emerging economies has increased debate over whether the business cycles of the OECD countries and the faster-growing among the emerging economies have begun to diverge. In other words, how fast can the emerging economies grow in the context of sluggish economies in the OECD countries? BOFIT has published several studies on the congruence of different countries’ business cycles, and further studies on this topic are currently in hand.
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