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

See all articles by Alon Kalay

Alon Kalay

Columbia Business School - Accounting, Business Law & Taxation

Suresh Nallareddy

Duke University - Fuqua School of Business

Gil Sadka

University of Texas at Dallas

Date Written: August 18, 2016

Abstract

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

Kalay, Alon and Nallareddy, Suresh and Sadka, Gil, Uncertainty and Sectoral Shifts: The Interaction between Firm-Level and Aggregate-Level Shocks, and Macroeconomic Activity (August 18, 2016). Columbia Business School Research Paper No. 16-23. Available at SSRN: https://ssrn.com/abstract=2738351 or http://dx.doi.org/10.2139/ssrn.2738351

Alon Kalay

Columbia Business School - Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

Suresh Nallareddy (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

Gil Sadka

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

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