Aggregate and Firm‐level Volatility in the Japanese Economy

In this paper, we investigate the volatility of sales at the firm and the aggregate level using the longitudinal data set of the Financial Statements Statistics of Corporations ( FSSC ). The main findings are as follows. First, firm‐level volatility decreased until the mid‐1990s, but then increased again. Second, aggregate‐level volatility steadily decreased until the mid‐1990s and remained low after that. Third, decomposing the total variance of the growth rate of aggregated sales, we find that the divergence between firm‐level and aggregate‐level volatility is caused by the drastic decline and subsequent low level of the covariance of sales growth between different firms and the increase in individual firms' sales volatility.