Uncertainty and Sectoral Shifts: The Interaction between Firm-Level and Aggregate-Level Shocks, and Macroeconomic Activity
44 Pages Posted: 28 Feb 2016 Last revised: 19 Aug 2016
Date Written: August 18, 2016
This study predicts and finds that the interaction of firm-level and aggregate-level shocks explains a significant portion of shocks to macroeconomic activity. Specifically, we hypothesize that the relation between uncertainty and economic growth is most pronounced when both firm-level and aggregate level uncertainty are high simultaneously. Similarly, we hypothesize that aggregate performance affects unemployment most when both firm-level dispersion is high and aggregate performance is low, based on the sectoral shift theory. Our hypotheses and empirical results show that the interactive effect of firm-level and aggregate-level shocks are larger than the sum of the individual effects.
JEL Classification: E32, G12, G14, M41
Suggested Citation: Suggested Citation