Input-output linkages and the propagation of domestic productivity shocks: assessing alternative theories with stochastic simulation

Relatively small sectoral productivity shocks could lead to sizable macroeconomic variability. Whereas most contributions in the literature analyze the issue of aggregate sensitivity using simple general equilibrium models, a novel approach is proposed in this paper, based on stochastic simulations...

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Bibliographic Details
Published in:Economic systems research 2016-01, Vol.28 (1), p.38-54
Main Authors: Roson, Roberto, Sartori, Martina
Format: Article
Language:English
Subjects:
Aggregate volatility
computable general equilibrium models
Equilibrium
granularity
Industrial concentration
Input output analysis
input-output linkages
intersectoral network
Macroeconomics
Productivity
sectoral shocks
Simulation
stochastic simulation
Studies
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Summary:Relatively small sectoral productivity shocks could lead to sizable macroeconomic variability. Whereas most contributions in the literature analyze the issue of aggregate sensitivity using simple general equilibrium models, a novel approach is proposed in this paper, based on stochastic simulations with a global computable general equilibrium model. We find that the variability of the GDP, induced by sectoral shocks, is basically determined by the degree of industrial concentration as measured by the Herfindahl index of industrial value added. The degree of centrality in inter-industrial connectivity, measured by the standard deviation of second-order degrees, is mildly significant, but it is also correlated with the industrial concentration index. After controlling for the correlation effect, we find that connectivity turns out to be statistically significant, although less so than granularity.
ISSN:0953-5314
1469-5758
DOI:10.1080/09535314.2015.1132194