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Network-based macro fluctuations: Evidence from Lithuania

Author

Listed:
  • Mihnea Constantinescu

    (Bank of Lithuania)

  • Kristina Griskeviciene

    (Bank of Lithuania and ISM University of Management and Economics)

Abstract

Do inter-sectoral linkages of intermediate products affect the spread of sectoral shocks at the aggregate level in Lithuania, a small and open economy? We answer this question by: i) constructing the domestic sector-by-sector direct requirements table using the Lithuanian interindustry transactions tables, and ii) applying Acemoglu et al. (2012)'s network-based methodology and Gabaix and Ibragimov (2011)'s modified log rank-log size regression to analyse the nature of inter-sectoral linkages. Our results indicate that the direct and indirect inter-sectoral linkages cause aggregate volatility to decay at a rate lower than square root of n - the rate predicted by the standard diversification argument. Furthermore, indirect linkages play an important role in the above-mentioned process, supporting the findings of Acemoglu et al. (2012). These results suggest that the inter-sectoral network of linkages represent a potential propagation mechanism for idiosyncratic shocks throughout the Lithuanian economy.

Suggested Citation

  • Mihnea Constantinescu & Kristina Griskeviciene, 2018. "Network-based macro fluctuations: Evidence from Lithuania," Bank of Lithuania Discussion Paper Series 6, Bank of Lithuania.
  • Handle: RePEc:lie:dpaper:6
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    More about this item

    Keywords

    Input-Output Linkages; Inter-sectoral Network; Aggregate Volatility; SmallOpen Economy; Complexity Economics;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • E00 - Macroeconomics and Monetary Economics - - General - - - General

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