Abstract

http://ssrn.com/abstract=1947096
 
 

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The Network Origins of Aggregate Fluctuations


Daron Acemoglu


Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Vasco M. Carvalho


Universitat Pompeu Fabra/CREI

Asuman E. Ozdaglar


Massachusetts Institute of Technology (MIT) - Department of Electrical Engineering and Computer Science

Alireza Tahbaz-Salehi


Columbia Business School - Decision Risk and Operations

October 20, 2011

MIT Department of Economics Working Paper No. 11-23

Abstract:     
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.

Number of Pages in PDF File: 36

Keywords: business cycle, aggregate volatility, diversification, input-output linkages, intersectoral network, cascades

JEL Classification: C67, D57, E32

working papers series


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Date posted: October 22, 2011  

Suggested Citation

Acemoglu, Daron and Carvalho, Vasco M. and Ozdaglar, Asuman E. and Tahbaz-Salehi, Alireza, The Network Origins of Aggregate Fluctuations (October 20, 2011). MIT Department of Economics Working Paper No. 11-23. Available at SSRN: http://ssrn.com/abstract=1947096 or http://dx.doi.org/10.2139/ssrn.1947096

Contact Information

Daron Acemoglu (Contact Author)
Massachusetts Institute of Technology (MIT) - Department of Economics ( email )
50 Memorial Drive
Room E52-380b
Cambridge, MA 02142
United States
617-253-1927 (Phone)
617-253-1330 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Vasco M. Carvalho
Universitat Pompeu Fabra/CREI ( email )
Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain
HOME PAGE: http://www.crei.cat/people/carvalho/welcome.html
Asuman E. Ozdaglar
Massachusetts Institute of Technology (MIT) - Department of Electrical Engineering and Computer Science ( email )
50 Memorial Drive
Cambridge, MA 02139-4307
United States
617-324-0058 (Phone)
Alireza Tahbaz-Salehi
Columbia Business School - Decision Risk and Operations ( email )
3022 Broadway
418 Uris Hall
New York, NY 10027
United States
HOME PAGE: http://www.columbia.edu/~at2761

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References:  34
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