Author: Per BakPublisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
Aggregate Fluctuations from Independent Sectoral Shocks
Author: Per BakCyclicality and Sectoral Linkages
Author: Michael T. K. HorvathPublisher:
ISBN:
Category :
Languages : en
Pages : 0
Book Description
The traditional argument against the relevance of sector-specific shocks for the aggregate phenomenon of business cycles invokes the law of large numbers: positive shocks in some sectors are offset by negative shocks in other sectors. This paper hypothesizes that the law of large numbers may be postponed if the nature of sectoral interactions provides a synchronizing force, heightening co-movement in sectoral production. The analysis is performed within the context of a multi-sector model similar in spirit to that of Long and Plosser (1983). The paper explores the role limited interaction between sectors plays in determining the response of the aggregate economy from sector-specific disturbances. A feature of limited interaction that the paper stresses is that it implies few possibilities of substitution among intermediate inputs and that this increases sectoral co-movement and hence aggregate volatility. A low degree of sectoral interaction is characterized by a sparse input-use matrix. The rate at which the law of large numbers applies for increasing levels of disaggregation is shown to be controlled by the rate of increase in the number of predominantly full rows in the input-use matrix rather than by the rate of increase in the total number of sectors.Investigations of actual input-use matrices from the U.S. economy reveal that the number of full rows increases much slower than the total number of rows upon disaggregation, and when these input-use matrices are used to parameterize the model, aggregate volatility from sectoral shocks declines at a slower rate than that implied by the law of large numbers.
Sectoral Shocks and Aggregate Fluctuations
Author: Michael T. K. HorvathPublisher:
ISBN:
Category :
Languages : en
Pages : 0
Book Description
This paper presents a multisector dynamic general equilibrium model of business cycles with a distinctive feature: aggregate fluctuations are driven by independent sectoral shocks. The model hypothesizes that trade among sectors provides a strong synchronization mechanism for these shocks due to the limited, but locally intense, interaction that is characteristic of such input trade flows. Limited interaction, characterized by a sparse intermediate input-use matrix, reduces substitution possibilities among intermediate inputs which strengthens co-movement in sectoral value-added and leads to a postponement of the law of large numbers in the variance of aggregate value-added. The chief virtue of this model is that reliance on implausible aggregate shocks is not necessary to capture the qualitative features of macroeconomic fluctuations. Building on Horvath (1997), which establishes the theoretical foundation for the relevance of limited interaction in the context of a stylized multisector model, this paper specifies a more general multisector model calibrated to the U.S. 2-digit Standard Industrial Code economy. Simulations prove the model is able to match empirical reality as closely as standard one-sector business cycle models without relying on aggregate shocks.
Idiosyncratic Shocks and Aggregate Fluctuations in an Emerging Market
Author: Mr. Francesco GrigoliPublisher: International Monetary Fund
ISBN: 1616354895
Category : Business & Economics
Languages : en
Pages : 20
Book Description
This paper provides the first assessment of the contribution of idiosyncratic shocks to aggregate fluctuations in an emerging market using confidential data on the universe of Chilean firms. We find that idiosyncratic shocks account for more than 40 percent of the volatility of aggregate sales. Although quite large, this contribution is smaller than documented in previous studies based on advanced economies, despite a higher degree of market concentration in Chile.We show that this finding is explained by larger firms being less volatile and by weaker propagation effects across Chilean firms.
Technology Shocks and Aggregate Fluctuations
Author: Mr.Pau RabanalPublisher: International Monetary Fund
ISBN: 1451875657
Category : Business & Economics
Languages : en
Pages : 68
Book Description
Our answer: Not so well. We reached that conclusion after reviewing recent research on the role of technology as a source of economic fluctuations. The bulk of the evidence suggests a limited role for aggregate technology shocks, pointing instead to demand factors as the main force behind the strong positive comovement between output and labor input measures.
Do Sector-specified Shocks Explain Aggregate Fluctuations
Author: Local Market Interactions and Aggregate Fluctuations
Author: Randal John VerbruggePublisher:
ISBN:
Category :
Languages : en
Pages : 334
Book Description
Price Rigidities and the Granular Origins of Aggregate Fluctuations
Author: Ernesto PastenPublisher:
ISBN:
Category : Business cycles
Languages : en
Pages : 58
Book Description
We study the aggregate implications of sectoral shocks in a multi-sector New Keynesian model featuring sectoral heterogeneity in price stickiness, sector size, and input-output linkages. We calibrate a 341 sector version of the model to the United States. Both theoretically and empirically, sectoral heterogeneity in price rigidity (i) generates sizable GDP volatility from sectoral shocks, (ii) amplifies both the "granular" and the "network" effects, (iii) alters the identity and relative contributions of the most important sectors for aggregate fluctuations, (iv) can change the sign of fluctuations, (v) invalidates the Hulten Theorem, and (vi) generates a frictional origin of aggregate fluctuations.
Sectoral and Aggregate Shocks to Industrial Output in Germany, Japan and Canada
Author: Reva KriegerPublisher:
ISBN:
Category : Business cycles
Languages : en
Pages : 62
Book Description
Aggregate Fluctuations from Independent Sectoral Shocks
Author: Per BakPublisher:
ISBN:
Category : Business cycles
Languages : en
Pages : 56
Book Description
This paper illustrates how fluctuations in aggregate economic activity can result from many small, independent shocks to individual sectors. The effects of the small independent shocks fail to cancel in the aggregate due to the presence of two non-standard assumptions: local interaction between productive units (linked by supply relationships), and non-convex technology. We also argue that neither feature on its own would suffice. In the case of a simple model, we explicitly calculate the distribution of aggregate activity in the limit of an infinite number of independently disturbed sectors.