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This paper uses a data set covering the universe of French firm-level sales, imports, and exports over the period 1993-2007 and a quantitative multi-country model to study the international transmission of business cycle shocks at both the micro and the macro levels. The largest firms are both important enough to generate aggregate fluctuations (Gabaix 2011), and most likely to be internationally connected. This implies that foreign shocks are transmitted to the domestic economy primarily through the largest firms. We first document a novel stylized fact: larger French firms are significantly more sensitive to foreign GDP growth. We then implement a quantitative framework calibrated to the full extent of observed heterogeneity in firm size, exporting, and importing. We simulate the propagation of foreign shocks to the French economy and report one micro and one macro finding. At the micro level, heterogeneity across firms predominates: 40-85 percent of the impact of foreign fluctuations on French GDP is accounted for by the 'foreign granular residual'-the term capturing the fact that larger firms are more affected by the foreign shocks. At the macro level, firm heterogeneity dampens the impact of foreign shocks, with the GDP responses 10-20 percent larger in a representative firm model compared to the baseline model.

We develop a quantitative business cycle model with search complementarities in the inter-\ud �rm matching process that entails a multiplicity of equilibria. An active static equilibrium\ud with strong joint venture formation, large output, and low unemployment can coexist\ud with a passive static equilibrium with low joint venture formation, low output, and high\ud unemployment. Changes in fundamentals move the system between the two static equilibria,\ud generating large and persistent business cycle \ud uctuations. The volatility of shocks is\ud important for the selection and duration of each static equilibrium. Su�ciently adverse\ud shocks in periods of low macroeconomic volatility trigger severe and protracted downturns.\ud The magnitude of government intervention is critical to foster economic recovery in the\ud passive static equilibrium, while it plays a limited role in the active static equilibrium.

In this paper we compare the cyclical features implied by an RBC model with two technology shocks under several statistical specifications for the stochastic processes governing technological change. We conclude that while a trend-stationary model accounts better for the observed volatilities, a difference-stationary model does a relatively better job of accounting for the correlation of the variables of interest with output. We also explore some counterfactuals to assess the ability of our model to replicate the volatility slowdown of the mid 1980s. First, we conclude that the stochastic growth model outperforms the deterministic growth model in accounting for the Great Moderation. Finally, we obtain that even though the neutral technology shock is the main driving force in the volatility slowdown, allowing for a larger financial flexibility in the form of a smaller volatility for the investment-specific innovation improves the ability of our model to account for the magnitude of the Great Moderation.