Network-based macro fluctuations: what about an open economy?

Mihnea Constantinescu () and Kristina Barauskaite (Griskeviciene)
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Mihnea Constantinescu: Economics Department, Bank of Lithuania

Baltic Journal of Economics, 2018, vol. 18, issue 2, 95-117

Abstract: Do input-output linkages of intermediate products affect the spread of sectoral shocks at the aggregate level in Lithuania, a small and open economy? What role does openness play in the empirical exercise? We answer these questions by: (i) constructing the Lithuanian input–output transactions tables with domestic-only and domestic and imported sector-by-sector direct requirements, and (ii) applying Acemoglu, Carvalho, Ozdaglar, and Tahbaz-Salehis [(2012). The network origins of aggregate fluctuations. Econometrica, 80(5), 1977-2016] network-based methodology and Gabaix and Ibragimov's [(2011). Rank-1/2: A simple way to improve the ols estimation of tail exponents. Journal of Business & Economic Statistics, 29(1), 24-39] modified log rank-log size regression. Our results indicate that the structure of input-output linkages cause aggregate economic volatility to decay at a rate lower than the established theoretical prediction. Indirect linkages play an equally important role for both domestic-only and aggregated domestic and import transactions.

Keywords: Input–output network; aggregate volatility; small-open economy; complexity economics (search for similar items in EconPapers)
JEL-codes: C13 C46 C67 E00 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:bic:journl:v:18:y:2018:i:2:p:95-117

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