Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/212333
Authors: 
Acemoglu, Daron
Akcigit, Ufuk
Kerr, William R.
Year of Publication: 
2015
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 25/2015
Abstract: 
The propagation of macroeconomic shocks through input-output and geographic networks can be a powerful driver of macroeconomic fluctuations. We first exposit that in the presence of Cobb-Douglas production functions and consumer preferences, there is a specific pattern of economic transmission whereby demand-side shocks propagate upstream (to input-supplying industries) and supply-side shocks propagate downstream (to customer industries) and that there is a tight relationship between the direct impact of a shock and the magnitudes of the downstream and the upstream indirect effects. We then investigate the short-run propagation of four different types of industry-level shocks: two demand-side ones (the exogenous component of the variation in industry imports from China and changes in federal spending) and two supply-side ones (TFP shocks and variation in knowledge/ideas coming from foreign patenting). In each case, we find substantial propagation of these shocks through the input-output network, with a pattern broadly consistent with theory. Quantitatively, the network-based propagation is larger than the direct effects of the shocks. We also show quantitatively large effects from the geographic network, capturing the fact that the local propagation of a shock to an industry will fall more heavily on other industries that tend to collocate with it across local markets. Our results suggest that the transmission of various diĀ¤erent types of shocks through economic networks and industry interlinkages could have first-order implications for the macroeconomy.
JEL: 
E32
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-077-4
Document Type: 
Working Paper

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