Business Cycle Fluctuations and Firms' Size Distribution Dynamics

Power law behavior is an emerging property of many economic models. In this paper we emphasize the fact that power law distributions are persistent but not time invariant. In fact, the scale and shape of the firms' size distribution fluctuate over time. In particular, on a log–log space, both the intercept and the slope of the power law distribution of firms' size change over the cycle: during expansions (recessions) the straight line representing the distribution shifts up and becomes less steep (steeper). We show that the empirical distributions generated by simulations of the model presented in Ref. 11 mimic real empirical distributions remarkably well.

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