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

  • Rui Castro
  • Gian Luca Clementi
  • Yoonsoo Lee

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† Rui Castro1, Gian Luca Clementi2,3 andYoonsoo Lee4 The Journal of Industrial Economics Volume 63, Issue 1, pages 1–29, March 2015
Handle: RePEc:nbr:nberwo:17659
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