Uncertainty and Sectoral Shifts: The Interaction Between Firm-Level and Aggregate-Level Shocks, and Macroeconomic Activity

Alon Kalay (), Suresh Nallareddy () and Gil Sadka ()
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Alon Kalay: Columbia University, New York, New York 10027
Suresh Nallareddy: Fuqua School of Business, Duke University, Durham, North Carolina 27708
Gil Sadka: University of Texas at Dallas, Richardson, Texas 75080

Management Science, 2018, vol. 64, issue 1, 198-214

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.

Keywords: earnings dispersion; aggregate earnings; uncertainty; sectoral shifts; macroeconomic activity (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:64:y:2018:i:1:p:198-214

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