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The Bullwhip: Time-to-Build and Sectoral Fluctuations

Author

Listed:
  • Yan Leng

    (University of Texas at Austin)

  • Ernest Liu

    (Princeton University)

  • Yifei Ren

    (Princeton University)

  • Aleh Tsyvinski

    (Yale University)

Abstract

We develop a theory of sectoral fluctuations driven by the propagation of demand shocks along supply chains with heterogeneous time to-build production. We solve the model in closed form. Downstream producers respond directly to current demand. Upstream producers, due to time-to-build delays, respond to anticipated future demand. Consequently, hump-shaped demand shocks to downstream goods propagate and amplify along the supply chain, generating pronounced volatility in upstream sectors and creating the bullwhip effect. Empirically and quantitatively, we show that the bullwhip is significant across downstream sectors that are important for final consumption.

Suggested Citation

  • Yan Leng & Ernest Liu & Yifei Ren & Aleh Tsyvinski, 2025. "The Bullwhip: Time-to-Build and Sectoral Fluctuations," Cowles Foundation Discussion Papers 2436, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:2436
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    File URL: https://cowles.yale.edu/sites/default/files/2025-04/d2436.pdf
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    References listed on IDEAS

    as
    1. Alexandr Kopytov & Bineet Mishra & Kristoffer Nimark & Mathieu Taschereau‐Dumouchel, 2024. "Endogenous Production Networks Under Supply Chain Uncertainty," Econometrica, Econometric Society, vol. 92(5), pages 1621-1659, September.
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