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Networks and the Macroeconomy: An Empirical Exploration

In: NBER Macroeconomics Annual 2015, Volume 30

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  • Daron Acemoglu
  • Ufuk Akcigit
  • William Kerr

Abstract

The propagation of macroeconomic shocks through input-output and geographic networks can be a powerful driver of macroeconomic fluctuations. We first exposit that in the presence of Cobb-Douglas production functions and consumer preferences, there is a specific pattern of economic transmission whereby demand-side shocks propagate upstream (to input-supplying industries) and supply-side shocks propagate downstream (to customer industries) and that there is a tight relationship between the direct impact of a shock and the magnitudes of the downstream and the upstream indirect effects. We then investigate the short-run propagation of four different types of industry-level shocks: two demand-side ones (the exogenous component of the variation in industry imports from China and changes in federal spending) and two supply-side ones (TFP shocks and variation in knowledge/ideas coming from foreign patenting). In each case, we find substantial propagation of these shocks through the input-output network, with a pattern broadly consistent with theory. Quantitatively, the network-based propagation is larger than the direct effects of the shocks. We also show quantitatively large effects from the geographic network, capturing the fact that the local propagation of a shock to an industry will fall more heavily on other industries that tend to collocate with it across local markets. Our results suggest that the transmission of various di¤erent types of shocks through economic networks and industry interlinkages could have first-order implications for the macroeconomy.
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Suggested Citation

  • Daron Acemoglu & Ufuk Akcigit & William Kerr, 2015. "Networks and the Macroeconomy: An Empirical Exploration," NBER Chapters,in: NBER Macroeconomics Annual 2015, Volume 30, pages 276-335 National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:13598
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    1. Alexei P Kireyev & Andrei Leonidov, 2016. "A Network Model of Multilaterally Equilibrium Exchange Rates," IMF Working Papers 16/130, International Monetary Fund.
    2. Glenn Magerman & Karolien De Bruyne & Emmanuel Dhyne & Jan Van Hove, 2016. "Heterogeneous Firms and the Micro Origins of Aggregate Fluctuations," Working Papers ECARES ECARES 2016-35, ULB -- Universite Libre de Bruxelles.
    3. Michael Weber & Ali Ozdagli, 2016. "Monetary Policy Through Production Networks: Evidence from the Stock Market," 2016 Meeting Papers 148, Society for Economic Dynamics.
    4. Xavier Giroud & Holger M. Mueller, 2017. "Firms' Internal Networks and Local Economic Shocks," NBER Working Papers 23176, National Bureau of Economic Research, Inc.
    5. Xavier Giroud & Holger M. Mueller, 2016. "Redistribution of Local Labor Market Shocks through Firms’ Internal Networks," NBER Working Papers 22396, National Bureau of Economic Research, Inc.
    6. Julian di Giovanni & Andrei A. Levchenko & Isabelle Mejean, 2018. "The Micro Origins of International Business-Cycle Comovement," American Economic Review, American Economic Association, vol. 108(1), pages 82-108, January.
    7. Ernesto Pasten & Raphael Schoenle & Michael Weber, 2017. "Price Rigidities and the Granular Origins of Aggregate Fluctuations," NBER Working Papers 23750, National Bureau of Economic Research, Inc.
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    9. Isai Quispe, 2017. "Fiscal Shocks and International Production Networks: An Empirical Investigation," IHEID Working Papers 20-2017, Economics Section, The Graduate Institute of International Studies.
    10. Ghani,Syed Ejaz & Kerr,William Robert & Segura,Alex, 2015. "Informal tradables and the employment growth of Indian manufacturing," Policy Research Working Paper Series 7206, The World Bank.
    11. Giroud, Xavier & Mueller, Holger M, 2016. "Redistribution of Local Demand Shocks through Firms' Internal Networks," CEPR Discussion Papers 11384, C.E.P.R. Discussion Papers.
    12. Daron Acemoglu & Asuman Ozdaglar & Alireza Tahbaz-Salehi, 2017. "Microeconomic Origins of Macroeconomic Tail Risks," American Economic Review, American Economic Association, vol. 107(1), pages 54-108, January.
    13. Alexei P Kireyev & Andrei Leonidov, 2015. "Network Effects of International Shocks and Spillovers," IMF Working Papers 15/149, International Monetary Fund.
    14. Xavier Giroud & Holger M. Mueller, 2017. "Redistribution of Local Labor Market Shocks through Firms’ Internal Networks," Working Papers 17-03, Center for Economic Studies, U.S. Census Bureau.
    15. MIYAKAWA Daisuke & MIYAUCHI Yuhei & Christian PEREZ, 2017. "Forecasting Firm Performance with Machine Learning: Evidence from Japanese firm-level data," Discussion papers 17068, Research Institute of Economy, Trade and Industry (RIETI).
    16. Paul Glasserman, 2015. "Contagion in Financial Networks," Economics Series Working Papers 764, University of Oxford, Department of Economics.
    17. Jakob Grazzini & Alessandro Spelta, 2015. "An empirical analysis of the global input-output network and its evolution," DISCE - Working Papers del Dipartimento di Economia e Finanza def031, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    18. Peltonen, Tuomas & Sarlin, Peter & Rancan, Michela, 2015. "Interconnectedness of the banking sector as a vulnerability to crises," Working Paper Series 1866, European Central Bank.
    19. Shai Bernstein & Emanuele Colonnelli & Xavier Giroud & Benjamin Iverson, 2017. "Bankruptcy Spillovers," NBER Working Papers 23162, National Bureau of Economic Research, Inc.
    20. Xavier Gabaix, 2016. "Power Laws in Economics: An Introduction," Journal of Economic Perspectives, American Economic Association, vol. 30(1), pages 185-206, Winter.
    21. Tokui, Joji & Kawasaki, Kazuyasu & Miyagawa, Tsutomu, 2017. "The economic impact of supply chain disruptions from the Great East-Japan earthquake," Japan and the World Economy, Elsevier, vol. 41(C), pages 59-70.
    22. Alexei P Kireyev & Andrei Leonidov, 2016. "China’s Imports Slowdown; Spillovers, Spillins, and Spillbacks," IMF Working Papers 16/51, International Monetary Fund.
    23. Klor, Esteban F & Saiegh, Sebastian & Satyanath, Shanker, 2016. "Crony Capitalism and the Targeting of Violence: Labor Repression During Argentina's Last Dictatorship," CEPR Discussion Papers 11650, C.E.P.R. Discussion Papers.
    24. Shai Bernstein & Emanuele Colonnelli & Xavier Giroud & Benjamin Iverson, 2017. "Bankruptcy Spillovers," Working Papers 17-16, Center for Economic Studies, U.S. Census Bureau.

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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