Input-output linkages in Pigouvian industrial fluctuations

Can Tian

Journal of Monetary Economics, 2021, vol. 117, issue C, 1078-1095

Abstract: Input-output linkages facilitate expectations-driven fluctuations. Signals about yet-to-be-realized aggregate (macro) and idiosyncratic (micro) fundamentals in the future affect current equilibrium outcome through chains of input needs when inputs require time to build. Depending on their importance on these chains, firms respond differently to common signals. The network structure, together with input time to build, determines the magnitude of signal-induced aggregate fluctuations. Macro signals need large input shares on average to produce sizable aggregate volatility, whereas micro signals require cross-sectional variations of input importance. Changing input time to build and altering the network structure have similar effects on equilibrium outcomes.

Keywords: Production network; Input-output linkages; Macro and micro shocks; Expectations; Aggregate volatility (search for similar items in EconPapers)
JEL-codes: D57 D83 D84 E32 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:117:y:2021:i:c:p:1078-1095

DOI: 10.1016/j.jmoneco.2020.09.001

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