Firm Interactions Drive Economic Fluctuations Without External Shocks.
Firm-level investments interacting can cause economic fluctuations without external shocks. A new method shows how these interactions lead to changes in overall capital growth rates. When many firms are involved, individual shocks can create significant fluctuations in the economy. By adding this mechanism to a model with fixed prices and investments, researchers found that investment demand shocks from individual productivity changes can drive economic ups and downs. This leads to changes in labor, output, and consumption, creating patterns similar to real-world business cycles.