5/2008 Lenno Uusküla. Liquidity and productivity shocks: A look at sectoral firm creation

Working Papers of Eesti Pank. No 5/2008

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.
JEL Code: E32, C32
Key words: VAR, liquidity shocks, technology shocks, firm entry

* The author would like to thank the Estonian Enterprises Register and Mailis Mölder for providing the data, Aurelijus Dabušinskas, Karsten Staehr and Martti Randveer for fruitful discussions, and the seminar participants at Eesti Pank for their comments. Part of the paper was written when the author was visiting Eesti Pank.

Author's e-mail address: lenno.uuskyla [at] epbe.ee

The views expressed are those of the author and do not necessarily represent the official views of Eesti Pank.


1. Introduction
2. Identification of structural shocks
3. Description of the data
4. Results
4.1. Impulse response functions of the liquidity shock
4.2. Impulse response functions of the neutral technology shock
4.3. Variance decompositions
5. Robustness analysis
6. Conclusions

Liquidity and Productivity Shocks: A Look at Sectoral Firm Creation, Working Papers of Eesti Pank No 5/2008 (PDF*)

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