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Cross-Sectoral Variation in The Volatility of Plant-Level Idiosyncratic Shocks

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  • Rui Castro
  • Gian Luca Clementi
  • Yoonsoo Lee

Abstract

We estimate the volatility of plant–level idiosyncratic shocks in the U.S. manufacturing sector. Our measure of volatility is the variation in Revenue Total Factor Productivity which is not explained by either industry– or economy–wide factors, or by establishments’ characteristics. Consistent with previous studies, we find that idiosyncratic shocks are much larger than aggregate random disturbances, accounting for about 80% of the overall uncertainty faced by plants. The extent of cross–sectoral variation in the volatility of shocks is remarkable. Plants in the most volatile sector are subject to about six times as much idiosyncratic uncertainty as plants in the least volatile. We provide evidence suggesting that idiosyncratic risk is higher in industries where the extent of creative destruction is likely to be greater.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17659.

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Date of creation: Dec 2011
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Publication status: published as Cross-Sectoral Variation in The Volatility of Plant-Level Idiosyncratic Shocks, with Rui Castro and Yoonsoo Lee, Journal of Industrial Economics, forthcoming
Handle: RePEc:nbr:nberwo:17659

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  1. Howitt, Peter & Griffith, Rachel & Aghion, Philippe & Blundell, Richard & Bloom, Nick, 2005. "Competition and Innovation: An Inverted-U Relationship," Scholarly Articles 4481507, Harvard University Department of Economics.
  2. Roberto M. Samaniego, 2008. "Entry, Exit and Investment-Specific Technical Change," PIER Working Paper Archive 08-013, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
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  9. Steven J. Davis & John Haltiwanger & Ron Jarmin & Javier Miranda, 2007. "Volatility and Dispersion in Business Growth Rates: Publicly Traded versus Privately Held Firms," NBER Chapters, in: NBER Macroeconomics Annual 2006, Volume 21, pages 107-180 National Bureau of Economic Research, Inc.
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Cited by:
  1. Kim Huynh & Teodora Paligorova & Robert Petrunia, 2013. "Public/Private Transitions and Firm Financing," Working Papers 13-36, Bank of Canada.
  2. Ezzat, Hassan, 2012. "The Application of GARCH Methods in Modeling Volatility Using Sector Indices from the Egyptian Exchange," MPRA Paper 51584, University Library of Munich, Germany.
  3. Dutz, Mark A., 2013. "Resource reallocation and innovation : converting enterprise risks into opportunities," Policy Research Working Paper Series 6534, The World Bank.

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