Intersectoral Linkages: Good Shocks, Bad Outcomes?

50 Pages Posted: 7 Oct 2019

See all articles by Kristian Behrens

Kristian Behrens

University of Quebec at Montreal (UQAM) - Department of Economics

Sergey Kichko

National Research University Higher School of Economics

Philip Ushchev

HSE University

Date Written: August 2019

Abstract

We analyze multisector models with endogenous product variety and derive general results on the magnitude of welfare changes due to sector-specific price shocks. Intersectoral linkages magnify or dampen these shocks, depending on complementarity or substitutability in consumers' preferences. Under the widely used combination of Cobb-Douglas-CES utilities and monopolistic competition, intersectoral linkages disappear. This does not hold with more general preferences or market structures, where sector-specific price shocks that are a priori welfare improving can turn out to be welfare worsening economy-wide. We illustrate this result with several examples, in particular where one sector is 'granular' and the other is monopolistically competitive.

Keywords: Complementarity, Intersectoral linkages, Sectoral Shocks, Substitutability, welfare changes

JEL Classification: D11, D43, D62

Suggested Citation

Behrens, Kristian and Kichko, Sergey and Ushchev, Philip, Intersectoral Linkages: Good Shocks, Bad Outcomes? (August 2019). CEPR Discussion Paper No. DP13946, Available at SSRN: https://ssrn.com/abstract=3464469

Kristian Behrens (Contact Author)

University of Quebec at Montreal (UQAM) - Department of Economics ( email )

P.O. Box 8888, Downtown Station
Montreal, Quebec H3C 3P8
Canada

Sergey Kichko

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Philip Ushchev

HSE University ( email )

3a Kantemirovskaya St, room 405
123 Griboedov Canal Embankment, room 123
Saint-Petersburg, Saint Petersburg 191119
Russia

HOME PAGE: http://https://sites.google.com/site/philipushchev/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
0
Abstract Views
145
PlumX Metrics