How Do Aggregate Fluctuations Depend on the Network Structure of the Economy?

51 Pages Posted: 26 Mar 2012  

Lorenzo Burlon

Bank of Italy

Date Written: March 23, 2012

Abstract

In this paper we analyze the aggregate volatility of a stylized economy where agents are networked. If strategic relations connect agents' actions, idiosyncratic shocks can generate nontrivial aggregate fluctuations. We show that the aggregate volatility depends on the network structure of the economy in two ways. On the one hand, the more connected the economy, the lower the aggregate volatility. On the other hand, the more concentrated the network, the higher the aggregate volatility. We provide an application of our theoretical predictions using US data on intersectoral linkages and firms' diversification patterns.

Keywords: Aggregate fluctuations, Networks, Firms, Intersectoral linkages

Suggested Citation

Burlon, Lorenzo, How Do Aggregate Fluctuations Depend on the Network Structure of the Economy? (March 23, 2012). Available at SSRN: https://ssrn.com/abstract=2028093 or http://dx.doi.org/10.2139/ssrn.2028093

Lorenzo Burlon (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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