Liquidity and productivity shocks: A look at sectoral firm creation

Lenno Uusküla ()

No 2008-05, Bank of Estonia Working Papers from Bank of Estonia

Abstract: Only a few papers consider the sectoral effects of aggregate shocks. But do the shocks have homogeneous effects across sectors? This paper looks at the impact of liquidity and neutral productivity shocks on the creation of firms across 8 sectors in Estonia. I show that the sectoral heterogeneity in the reaction is low for liquidity shocks and high for technology shocks. An increase in liquidity leads to a uniform growth in the creation of firms across sectors with the exception of the financial sector. An increase in the labor productivity shock the entry of firms permanently in sectors that are traditionally considered to be producing tradables, such as transport or manufacturing. The increase in the creation of firms is short and close to zero in the long run in the nontradable sectors, such as retail and whole sale, real estate, and hotels and restaurants.

Keywords: VAR; liquidity shocks; technology shocks; firm entry (search for similar items in EconPapers)
JEL-codes: E32 C32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-mac
Date: 2008-10-30, Revised 2008-10-30
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