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Sectoral disturbances and aggregate economic activity

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  • Nadezhda Malysheva
  • Pierre-Daniel G. Sarte

Abstract

In this article, we provide an overview of the key mechanisms by which sectoral disturbances affect aggregate economic activity. We describe how the distribution of sectoral shares influences each sector's contribution to the variation in aggregate output. We also illustrate different aspects of the effects of input-output linkages across sectors on the amplification and propagation of idiosyncratic sectoral shocks. In particular, we review and summarize key conditions, first articulated in Dupor (1999), under which movements in aggregate output are invariant to sectoral disturbances, even in the presence of intersectoral linkages in production. Finally, using estimates of a two-digit input use table constructed by the Bureau of Economic Analysis, we provide various calculations of the contribution of different sectors to variations in aggregate output.

Suggested Citation

  • Nadezhda Malysheva & Pierre-Daniel G. Sarte, 2011. "Sectoral disturbances and aggregate economic activity," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 97(2Q), pages 153-173.
    • Handle: RePEc:fip:fedreq:y:2011:i:2q:p:153-173:n:v.97no.2
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    References listed on IDEAS

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    1. Andrew T. Foerster & Pierre-Daniel G. Sarte & Mark W. Watson, 2011. "Sectoral versus Aggregate Shocks: A Structural Factor Analysis of Industrial Production," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 1-38.
    2. Daron Acemoglu & Asuman Ozdaglar & Alireza Tahbaz-Salehi, 2010. "Cascades in Networks and Aggregate Volatility," NBER Working Papers 16516, National Bureau of Economic Research, Inc.
    3. Xavier Gabaix, 2011. "The Granular Origins of Aggregate Fluctuations," Econometrica, Econometric Society, vol. 79(3), pages 733-772, May.
    4. Dupor, Bill, 1999. "Aggregation and irrelevance in multi-sector models," Journal of Monetary Economics, Elsevier, vol. 43(2), pages 391-409, April.
    5. Michael Horvath, 1998. "Cyclicality and Sectoral Linkages: Aggregate Fluctuations from Independent Sectoral Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(4), pages 781-808, October.
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    1. Ryohei Hisano & Tsutomu Watanabe & Takayuki Mizuno & Takaaki Ohnishi & Didier Sornette, 2015. "The gradual evolution of buyer--seller networks and their role in aggregate fluctuations," Papers 1506.00236, arXiv.org, revised Aug 2016.
    2. Joya, Omar & Rougier, Eric, 2019. "Do (all) sectoral shocks lead to aggregate volatility? Empirics from a production network perspective," European Economic Review, Elsevier, vol. 113(C), pages 77-107.
    3. Ryohei Hisano & Tsutomu Watanabe & Takayuki Mizuno & Takaaki Ohnishi & Didier Sornette, 2016. "The gradual evolution of buyer-seller networks and their role in aggregate fluctuations," CARF F-Series CARF-F-389, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.

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    Keywords

    Business cycles; Economic growth;

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