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Inter-Firm Relationships and Asset Prices

66 Pages Posted: 21 Feb 2017  

Carlos Ramírez

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: 2017-01


This paper proposes a novel link between the propagation of shocks within production networks and asset prices. It develops a dynamic network model in which the propagation of firm cash-flow shocks via inter-firm relationships affects the economy's equilibrium asset prices. When calibrated to match key features of customer-supplier networks in the United States, the model generates long-run risks, high and volatile risk premia, and a low and stable risk-free rate. Consistent with data from firms in manufacturing and service industries, the model predicts that central firms in the network command lower risk premiums than peripheral firms, and that firm-level return volatilities exhibit a high degree of co-movement.

Keywords: Equilibrium asset prices, Inter-firm relationships, Networks, Shock propagation

JEL Classification: G12, E32, L10

Suggested Citation

Ramírez, Carlos, Inter-Firm Relationships and Asset Prices (2017-01). FEDS Working Paper No. 2017-014. Available at SSRN: or

Carlos Ramírez (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States


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