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Investment Networks, Sectoral Comovement, and the Changing U.S. Business Cycle

Author

Listed:
  • Christian vom Lehn

    (Brigham Young University)

  • Thomas Winberry

    (University of Chicago)

Abstract

We study the role of sectoral comovement in accounting for changes in the U.S. business cycle since the 1980s. We first show that the correlation of value added across sectors has fallen since the 1980s but that the correlation of employment has not. These patterns statistically account for the decline in both GDP volatility and the cyclicality of labor productivity since the 1980s. We then build a model with sectoral linkages in both final and investment goods. The model endogenously matches the observed changes in sectoral comovement patterns, driven by the change in the covariance matrix of sectoral TFP shocks. The structure of the investment network is key to generating this result because it propagates sectoral shocks across sectors more strongly for employment than value added. Our calibrated model accounts for a significant portion of the changes in aggregate fluctuations since the 1980s.

Suggested Citation

  • Christian vom Lehn & Thomas Winberry, 2019. "Investment Networks, Sectoral Comovement, and the Changing U.S. Business Cycle," 2019 Meeting Papers 1158, Society for Economic Dynamics.
    • Handle: RePEc:red:sed019:1158
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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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