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Structural propagation in a production network with restoring substitution elasticities

Author

Listed:
  • Nakano, Satoshi
  • Nishimura, Kazuhiko

Abstract

We model an economy-wide production network by cascading binary compounding functions, based on the sequential processing nature of the production activities. As we observe a hierarchy among the intermediate processes spanning the empirical input–output transactions, we utilize a stylized sequence of processes for modeling the intra-sectoral production activities. Under the productivity growth that we measure jointly with the state-restoring elasticity parameters for each sectoral activity, the network of production completely replicates the records of multi-sectoral general equilibrium prices and shares for all factor inputs observed in two temporally distant states. Thereupon, we study propagation of a small exogenous productivity shock onto the structure of production networks by way of hierarchical clustering.

Suggested Citation

  • Nakano, Satoshi & Nishimura, Kazuhiko, 2018. "Structural propagation in a production network with restoring substitution elasticities," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 512(C), pages 986-999.
  • Handle: RePEc:eee:phsmap:v:512:y:2018:i:c:p:986-999
    DOI: 10.1016/j.physa.2018.08.110
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    References listed on IDEAS

    as
    1. Vasco M. Carvalho, 2014. "From Micro to Macro via Production Networks," Journal of Economic Perspectives, American Economic Association, vol. 28(4), pages 23-48, Fall.
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    12. de Santa Helena, E.L. & Nascimento, C.M. & Gerhardt, G.J.L., 2015. "Alternative way to characterize a q-Gaussian distribution by a robust heavy tail measurement," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 435(C), pages 44-50.
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