The network origins of aggregate fluctuations
This paper argues that in the presence of intersectoral input-output linkages, microeconomic idiosyncratic shocks may lead to aggregate fluctuations. In particular, it shows that, as the economy becomes more disaggregated, the rate at which aggregate volatility decays is determined by the structure of the network capturing such linkages. Our main results provide a characterization of this relationship in terms of the importance of different sectors as suppliers to their immediate customers as well as their role as indirect suppliers to chains of downstream sectors. Such higher-order interconnections capture the possibility of "cascade effects" whereby productivity shocks to a sector propagate not only to its immediate downstream customers, but also indirectly to the rest of the economy. Our results highlight that sizable aggregate volatility is obtained from sectoral idiosyncratic shocks only if there exists significant asymmetry in the roles that sectors play as suppliers to others, and that the "sparseness" of the input-output matrix is unrelated to the nature of aggregate fluctuations.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Xavier Gabaix & Rustam Ibragimov, 2011.
"Rank - 1 / 2: A Simple Way to Improve the OLS Estimation of Tail Exponents,"
Journal of Business & Economic Statistics,
Taylor & Francis Journals, vol. 29(1), pages 24-39, January.
- Xavier Gabaix & Rustam Ibragimov, 2007. "Rank-1/2: A Simple Way to Improve the OLS Estimation of Tail Exponents," NBER Technical Working Papers 0342, National Bureau of Economic Research, Inc.
- Xavier Gabaix, 2009.
"The Granular Origins of Aggregate Fluctuations,"
NBER Working Papers
15286, National Bureau of Economic Research, Inc.
- Vasco Carvalho & Xavier Gabaix, 2013.
"The Great Diversification and Its Undoing,"
American Economic Review,
American Economic Association, vol. 103(5), pages 1697-1727, August.
- Vasco M. Carvalho & Xavier Gabaix, 2010. "The Great Diversification and its Undoing," NBER Working Papers 16424, National Bureau of Economic Research, Inc.
- Xavier Gabaix & Vasco M. Carvalho, 2010. "The Great Diversification and its Undoing," 2010 Meeting Papers 880, Society for Economic Dynamics.
- Vasco Carvalho & Xavier Gabaix, 2010. "The Great Diversification and its Undoing," Working Papers 422, Barcelona Graduate School of Economics.
- Carvalho, Vasco M & Gabaix, Xavier, 2010. "The Great Diversification and its Undoing," CEPR Discussion Papers 8044, C.E.P.R. Discussion Papers.
- Vasco Carvalho & Xavier Gabaix, 2010. "The great diversification and its undoing," Economics Working Papers 1208, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2010.
- Daron Acemoglu & Asuman Ozdaglar & Alireza Tahbaz-Salehi, 2010. "Cascades in Networks and Aggregate Volatility," NBER Working Papers 16516, National Bureau of Economic Research, Inc.
- Ballester, Coralio & Calvó-Armengol, Antoni & Zenou, Yves, 2005.
"Who’s Who in Networks. Wanted: The Key Player,"
CEPR Discussion Papers
5329, C.E.P.R. Discussion Papers.
- Coralio Ballester & Antoni Calvo-Armengol & Yves Zenou, 2005. "Who's Who in Networks. Wanted: the Key Player," NajEcon Working Paper Reviews 666156000000000586, www.najecon.org.
- Coralio Ballester & Antoni Calvó-Armengol & Yves Zenou, 2004. "Who's Who in Networks. Wanted: The Key Player," Working Papers 178, Barcelona Graduate School of Economics.
- Antonio Ciccone, 2000.
"Input chains and industrialization,"
Economics Working Papers
498, Department of Economics and Business, Universitat Pompeu Fabra.
- Andrew T. Foerster & Pierre-Daniel G. Sarte & Mark W. Watson, 2011. "Sectoral versus Aggregate Shocks: A Structural Factor Analysis of Industrial Production," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 1-38.
- Jovanovic, Boyan, 1986.
"Micro Shocks and Aggregate Risks,"
86-14, C.V. Starr Center for Applied Economics, New York University.
- Steven N. Durlauf, 1991.
"Nonergodic Economic Growth,"
NBER Working Papers
3719, National Bureau of Economic Research, Inc.
- Burres, David, 1994. "Homeomorphism between Leontief and Cobb-Douglas input-output models," Economics Letters, Elsevier, vol. 44(1-2), pages 49-53.
- Charles R. Hulten, 1978. "Growth Accounting with Intermediate Inputs," Review of Economic Studies, Oxford University Press, vol. 45(3), pages 511-518.
- Xavier Gabaix & Rustam Ibragimov, 2006. "Log(Rank-1/2): A Simple Way to Improve the OLS Estimation of Tail Exponents," Harvard Institute of Economic Research Working Papers 2106, Harvard - Institute of Economic Research.
When requesting a correction, please mention this item's handle: RePEc:upf:upfgen:1291. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.