Recent changes in firm dynamics and the nature of economic growth

In line with the US economy, market concentration and dispersion of revenue productivity within industries increased in Sweden from 1997-2017. I document a novel finding in administrative data that provides important insights about the trends: firm size and revenue productivity growth accelerated starting in the 1990s. I reconcile these trends in a dynamic framework. Firms grow in size by expanding into new product markets and increase markups by distancing competitors within their product markets through R&D. The model rationalizes the empirical trends by reducing the R&D cost of distancing competitors and raising the cost of entering new product markets. I estimate that the changes in R&D costs increase long-run growth by 0.5 pp per year, whereas they have a negative effect on the output level through a reduction in allocative efficiency. Lastly, I study the effect of different R&D policies on economic growth. A patent waiver, recently discussed for Covid vaccines, lowers the aggregate growth rate, despite improving static efficiency.

Micro PPI-based real output forensics

We analyze producer price index micro data on total private goods and services production in Sweden to quantify the implications of methods of price index construction on the measured aggregate inflation rate. We document large quantitative effects of different methods of lower-level aggregation, i.e., the aggregation of price changes of different products into an index at the 5-digit product group level. Moving from an arithmetic index to geometric averaging across items decreases annual goods and services inflation by 0.5 and 0.4 percentage points, respectively. We contrast the results of these statistical indices with an economic theory-based index relying on a nested-CES structure. Estimating elasticities of substitution across goods within industries implies that such a theory-based index results in an annual inflation rate that is 3.9 and 3.1 percentage points lower for goods and services, respectively. Our results pose a challenge for the comparability of inflation rates and real output growth rates across countries as well as a tension between (economic) theory and (statistical) measurement. Therefore, we recommend that statistical offices report three moments for each product group instead of the published single index number. This would allow users to approximate any nested-CES index under the assumption of a joint log-normal distribution of price growth factors and weights.

Preference heterogeneity and portfolio choices over the wealth distribution

What are the key elements required to generate portfolio choices over the wealth distribution in line with the data? In this paper, we argue that capturing preference heterogeneity across individuals is one of them. Using a partial equilibrium Bewley-type model with endogenous portfolio choice and cyclical skewness in labor income shocks, we show that heterogeneity in risk aversion, impatience and portfolio diversification is crucial to match the empirical schedules of unconditional risky share, participation and share of idiosyncratic variance in individual portfolios. At the same time, these elements generate dispersion in wealth through their heterogeneous effects on individuals' investment decisions resulting in a cross-sectional wealth distribution that provides a close fit of the data, particularly at the very top.