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Aggregate fluctuations from independent sectoral shocks: self-organized criticality in a model of production and inventory dynamics

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  • Bak, Per
  • Chen, Kan
  • Scheinkman, Jose
  • Woodford, Michael

Abstract

This paper illustrates how fluctuations in aggregate economic activity can result from many small, independent shocks to individual sectors. The effects of the small independent shocks fail to cancel in the aggregate due to the presence of two non-standard assumptions: local interaction between productive units (linked by supply relationships), and non-convex technology. We also argue that neither feature on its own would suffice. In the case of a simple model, we explicitly calculate the distribution of aggregate activity in the limit of an infinite number of independently disturbed sectors.

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Bibliographic Info

Article provided by Elsevier in its journal Ricerche Economiche.

Volume (Year): 47 (1993)
Issue (Month): 1 (March)
Pages: 3-30

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Handle: RePEc:eee:riceco:v:47:y:1993:i:1:p:3-30

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Web page: http://www.elsevier.com/locate/inca/622941

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  1. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, December.
  2. Alan S. Blinder & Louis J. Maccini, 1991. "Taking Stock: A Critical Assessment of Recent Research on Inventories," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 73-96, Winter.
  3. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 39-69, February.
  4. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  5. Timothy F. Bresnahan & Valerie A. Ramey, 1992. "Output Fluctuations at the Plant Level," NBER Working Papers 4105, National Bureau of Economic Research, Inc.
  6. Russell Cooper & John Haltiwanger, 1990. "The Aggregate Implications of Machine Replacement: Theory and Evidence," NBER Working Papers 3552, National Bureau of Economic Research, Inc.
  7. Benoit Mandelbrot, 1963. "The Variation of Certain Speculative Prices," The Journal of Business, University of Chicago Press, vol. 36, pages 394.
  8. Scheinkman, Jose A, 1990. "Nonlinearities in Economic Dynamics," Economic Journal, Royal Economic Society, vol. 100(400), pages 33-48, Supplemen.
  9. Jovanovic, Boyan, 1987. "Micro Shocks and Aggregate Risk," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 395-409, May.
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