MACRO Seminar: Stephen Terry, University of Michigan

Speaker

Stephen Terry, University of Michigan

Biography

Stephen Terry is a macroeconomist who studies firm investment, in particular the impact of micro-level frictions or mechanisms on long-term growth and business cycles. Stephen received his PhD in economics from Stanford University in 2015, is affiliated with the NBER, and previously served as an assistant professor at Boston University.

Title

"The Empirical Distribution of Firm Dynamics and Its Macro Implications∗"

Abstract

Idiosyncratic shocks shape firm decisions and the value functions they maximize. Using a comprehensive firm-level dataset, we document significant departures from the widely assumed Gaussian AR(1) stochastic process, including fat-tailed, leptokurtic revenue transitions and lower persistence in the tails. This discrepancy has two key implications. First, these dynamics flatten the revenue-to-value mapping and create a more clustered firm value distribution. Second, solving a canonical general equilibrium heterogeneous firm dynamics model nonparametrically to align with these observed empirical patterns reveals a first-order quantitative impact on the economy’s responsiveness to aggregate shifts. Accurately modeling firm-level shocks is imperative for macroeconomics. Keywords: firm dynamics, nonparametric shocks, selection, subsidy policy