Uncertainty and Sectoral Shifts: The Interaction Between Firm-Level and Aggregate-Level Shocks, and Macroeconomic Activity
Alon Kalay, Suresh Nallareddy, Gil Sadka
Management Science · 2018 · Volume 64 · Issue 1
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. This paper was accepted by Mary Barth, accounting .
Keywords
earnings dispersion, aggregate earnings, uncertainty, sectoral shifts, macroeconomic activity
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