Abstract

https://ssrn.com/abstract=2632793
 


 



Networks and the Macroeconomy: An Empirical Exploration


Daron Acemoglu


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

Ufuk Akcigit


University of Chicago - Department of Economics; National Bureau of Economic Research (NBER); Center for Economic and Policy Research (CEPR)

William R. Kerr


Harvard University - Entrepreneurial Management Unit

July 2, 2015

MIT Department of Economics Working Paper No. 15-05

Abstract:     
The propagation of macroeconomic shocks through input-output and geographic networks can be a powerful driver of macroeconomic fluctuations. We first exposit that in the presence of Cobb-Douglas production functions and consumer preferences, there is a specific pattern of economic transmission whereby demand-side shocks propagate upstream (to input-supplying industries) and supply-side shocks propagate downstream (to customer industries) and that there is a tight relationship between the direct impact of a shock and the magnitudes of the downstream and the upstream indirect effects. We then investigate the short-run propagation of four different types of industry-level shocks: two demand-side ones (the exogenous component of the variation in industry imports from China and changes in federal spending) and two supply side ones (TFP shocks and variation in knowledge/ideas coming from foreign patenting). In each case, we find substantial propagation of these shocks through the input-output network, with a pattern broadly consistent with theory. Quantitatively, the network-based propagation is larger than the direct effects of the shocks. We also show quantitatively large effects from the geographic network, capturing the fact that the local propagation of a shock to an industry will fall more heavily on other industries that tend to collocate with it across local markets. Our results suggest that the transmission of various different types of shocks through economic networks and industry interlinkages could have first-order implications for the macroeconomy.

Number of Pages in PDF File: 97

Keywords: Economic fluctuations, geographic collocation, input-output linkages, networks, propagation, shocks

JEL Classification: E32


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Date posted: July 19, 2015 ; Last revised: August 12, 2015

Suggested Citation

Acemoglu, Daron and Akcigit, Ufuk and Kerr, William R., Networks and the Macroeconomy: An Empirical Exploration (July 2, 2015). MIT Department of Economics Working Paper No. 15-05. Available at SSRN: https://ssrn.com/abstract=2632793 or http://dx.doi.org/10.2139/ssrn.2632793

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
Ufuk Akcigit
University of Chicago - Department of Economics ( email )
1126 E. 59th St
Chicago, IL 60637
United States
HOME PAGE: http://www.ufukakcigit.com
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Center for Economic and Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
William R. Kerr
Harvard University - Entrepreneurial Management Unit ( email )
Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
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