Intermediate Inputs and Sectoral Comovement in the Business Cycle

FRB Richmond Working Paper No. 97-6

31 Pages Posted: 19 Nov 2012

See all articles by Andreas Hornstein

Andreas Hornstein

Federal Reserve Bank of Richmond

Jack Praschnik

affiliation not provided to SSRN

Date Written: May 1, 1997

Abstract

The postwar U.S. business cycle is characterized by positive comovement of employment and output across sectors. It has been argued that multi-sector growth models are inconsistent with this observation when changes in relative productivities are the main source of fluctuations. We suggest that the input-output structure of an economy, in particular the pervasive use of intermediate inputs, can induce positive comovement in sectoral employment and output following changes in relative productivities. We calibrate a model of the U.S. economy for the durable and nondurable goods producing sectors, and show that sectoral employment and output move together if intermediate inputs are used in production. The model is also consistent with the observation that the relative price of nondurable goods is procyclical.

Keywords: Real Business Cycles, Multi-Sector Growth Model, Co-Movement

JEL Classification: D24, E23, E32

Suggested Citation

Hornstein, Andreas and Praschnik, Jack, Intermediate Inputs and Sectoral Comovement in the Business Cycle (May 1, 1997). FRB Richmond Working Paper No. 97-6. Available at SSRN: https://ssrn.com/abstract=2129929 or http://dx.doi.org/10.2139/ssrn.2129929

Andreas Hornstein (Contact Author)

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States
804-697-8266 (Phone)
804-697-8255 (Fax)

Jack Praschnik

affiliation not provided to SSRN

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