The Network Origins of Aggregate Fluctuations
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Author(s)
Acemoglu, Daron
Carvalho, Vasco M.
Ozdaglar, Asuman E.
Tahbaz-Salehi, Alireza
Date Issued
September 2012
Journal
Econometrica
Publisher
Econometric Society
Citation
Acemoglu, Daron, Vasco M. Carvalho, Asuman Ozdaglar, and Alireza Tahbaz-Salehi.“The Network Origins of Aggregate Fluctuations.” Econometrica 80.5 (2012): 1977–2016.
Version
Author's final manuscript
Abstract
This paper argues that in the presence of intersectoral input-output linkages, microeconomic
idiosyncratic shocks may lead to aggregate fluctuations. We show, as the
economy becomes more disaggregated, the rate at which aggregate volatility decays is
determined by the structure of the network capturing such linkages. Our main results
provide a characterization of this relationship in terms of the importance of different
sectors as suppliers to their immediate customers as well as their role as indirect suppliers
to chains of downstream sectors. Such higher-order interconnections capture the
possibility of “cascade effects” whereby productivity shocks to a sector propagate not
only to its immediate downstream customers, but also to the rest of the economy. Our
results highlight that sizable aggregate volatility is obtained from sectoral idiosyncratic
shocks only if there exists significant asymmetry in the roles that sectors play as suppliers
to others, and that the “sparseness” of the input-output matrix is unrelated to
the nature of aggregate fluctuations.
MIT Department
Massachusetts Institute of Technology. Department of Economics
Massachusetts Institute of Technology. Department of Electrical Engineering and Computer Science
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DOI of Published Version
http://dx.doi.org/10.3982/ECTA9623
https://doi.org/10.3982/ECTA9623
