This paper investigates the microeconomic origins of aggregate economic fluctuations in Europe. It examines the relevance of idiosyncratic shocks at the top 100 large firms (the granular shocks) in explaining aggregate macroeconomic fluctuations. The paper also assesses the strength of spillovers from large firms onto SMEs. Using firm-level data covering over 14 million firms and eight european countries (Austria, Belgium, Finland, France, Germany, Italy, Portugal and Spain), we find that: (i) 40 percent of the variance in GDP in the sample can be explained by idiosyncratic shocks at large firms; (ii) positive granular shocks at large firms spill over to domestic SMEs’ output, especially if SMEs’ balance sheets are healthy and if SMEs belong to the services and manufacturing sectors.
This Selected Issues paper discusses the impact of workforce aging on productivity in the euro area. The euro area population has aged considerably over the past few decades, and the process is expected to accelerate in the years ahead. At the same time, labor productivity growth in the euro area has been sluggish, posing risks to long-term growth prospects. It is estimated that workforce aging could significantly retard total factor productivity (TFP) growth over the medium to long term. Given current demographic projections from the Organisation for Economic Co-operation and Development, the aging of the workforce in the euro area could lower TFP growth by about 0.2 percentage points each year between 2014 and 2035. Appropriate policies can, however, mitigate the adverse effects of aging.
Mr. Kenneth H Kang, Ms. Hong Liang, Mr. Henry Ma, Mr. Anthony J. Richards, Mr. Ajai Chopra, and Ms. Meral Karasulu
This paper reviews and draws lessons from the stabilization and reform program that Korea implemented in response to the 1997-98 crisis. The economy recovered quickly from the deep recession in 1998 and its vulnerability to a balance of payments crisis has been reduced sharply. Significant progress has also been made in stabilizing the financial system and addressing corporate distress, and wide-ranging reforms have made Korea’s economy more open, competitive, and market driven. Notwithstanding these achievements, more needs to be done before the soundness of the corporate and financial sectors is firmly established.