Microeconomic Origins of Macroeconomic Tail Risks
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Ozdaglar_Microeconomic.pdf
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Author(s)
Acemoglu, Daron
Ozdaglar, Asuman
Tahbaz-Salehi, Alireza
Acemoglu, K. Daron
Koksal, Asuman E.
Date Issued
January 2017
Journal
American Economic Review
Publisher
American Economic Association
Citation
Acemoglu, Daron, et al. “Microeconomic Origins of Macroeconomic Tail Risks.” American Economic Review 107, 1 (January 2017): 54–108 © 2017 American Economic Association
Version
Final published version
Abstract
Using a multisector general equilibrium model, we show that the interplay of idiosyncratic microeconomic shocks and sectoral heterogeneity results in systematic departures in the likelihood of large economic downturns relative to what is implied by the normal distribution. Such departures can emerge even though GDP fluctuations are approximately normally distributed away from the tails, highlighting the different nature of large economic downturns from regular business-cycle fluctuations. We further demonstrate the special role of input-output linkages in generating tail comovements, whereby large recessions involve not only significant GDP contractions, but also large simultaneous declines across a wide range of industries.
MIT Department
Massachusetts Institute of Technology. Department of Economics
Massachusetts Institute of Technology. Department of Electrical Engineering and Computer Science
Massachusetts Institute of Technology. Laboratory for Information and Decision Systems
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Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.
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DOI of Published Version
https://doi.org/10.1257/aer.20151086
