Do Granular Shocks Generate Sizeable Aggregate Volatility?

11 Pages Posted: 19 Jan 2024

See all articles by Antoine Mandel

Antoine Mandel

Université Paris I Panthéon-Sorbonne; Climate Finance Alpha

Vipin P. Veetil

Indian Institute of Managment Kozhikode

Date Written: December 27, 2023

Abstract

Over the last decade, numerous economists have argued that firm-level idiosyncratic productivity shocks can generate much of the observed aggregate volatility if the firms are placed on a production network. We test this hypothesis using granular data on buyer-seller relations between more than half a million firms in the US economy. We find that firm-level shocks within a network setting generate less than a tenth of the observed aggregate volatility. While the network mechanism is capable of amplifying firm-level shocks, the numerical values of the structural properties of the network that generate this amplification are such that the amplification proves to be far from sufficient.

Keywords: Production Network, Aggregate Volatility, Powerlaw

JEL Classification: E30, C67, D57

Suggested Citation

Mandel, Antoine and Veetil, Vipin P., Do Granular Shocks Generate Sizeable Aggregate Volatility? (December 27, 2023). Available at SSRN: https://ssrn.com/abstract=4677038 or http://dx.doi.org/10.2139/ssrn.4677038

Antoine Mandel

Université Paris I Panthéon-Sorbonne ( email )

17, rue de la Sorbonne
Paris, IL 75005
France

Climate Finance Alpha ( email )

20 rue de Vintimille
PARIS 9E ARRONDISSEMENT, 75009

Vipin P. Veetil (Contact Author)

Indian Institute of Managment Kozhikode ( email )

Kerala
Kunnamangalam
Kozhikode, KS Kerala 673570
India

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