Paper #1206
- Title:
- Aggregate fluctuations and the network structure of intersectoral trade
- Author:
- Vasco Carvalho
- Date:
- November 2007 (Revised: October 2010)
- Abstract:
- This paper analyzes the flow of intermediate inputs across sectors by adopting a network perspective on sectoral interactions. I apply these tools to show how fluctuations in aggregate economic activity can be obtained from independent shocks to individual sectors. First, I characterize the network structure of input trade in the U.S. On the demand side, a typical sector relies on a small number of key inputs and sectors are homogeneous in this respect. However, in their role as input-suppliers sectors do differ: many specialized input suppliers coexist alongside general purpose sectors functioning as hubs to the economy. I then develop a model of intersectoral linkages that can reproduce these connectivity features. In a standard multisector setup, I use this model to provide analytical expressions linking aggregate volatility to the network structure of input trade. I show that the presence of sectoral hubs - by coupling production decisions across sectors - leads to fluctuations in aggregates.
- Keywords:
- Aggregation; Business Cycles; Comovement; Input-Output; Multisector Growth Models; Networks; Technological Diversification.
- Area of Research:
- Macroeconomics and International Economics
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