Measuring the Effects of Aggregate Shocks on Unit-Level Outcomes and Their Distribution (with Stephanie Ettmeier (University of Bonn); Chi Hyun Kim (University of Bonn))

This paper studies the effect of aggregate shocks on micro-level outcomes. We develop and estimate a cross-sectional units vector autoregression (csuVAR) that combines aggregate variables with unit-level outcomes, earnings in our application. The csuVAR also allows us to reconstruct the cross-sectional distribution from the unit-level outcomes. We contrast the csuVAR with a functional VAR model (fVAR) that is designed to directly track the evolution of macroeconomic aggregates and a cross-sectional distribution, but not individual units. In an empirical application we examine the effect of productivity shocks on the unit-level labor earnings dynamics in Germany, using a panel data set constructed from the Sample of Integrated Labour Market Biographies (SIAB) published by Institute for Employment Research (IAB) of the German Federal Employment Agency.