A Dynamic Model of Input–Output Networks

Ernest Liu and Aleh Tsyvinski

The Review of Economic Studies, 2024, vol. 91, issue 6, 3608-3644

Abstract: We develop a dynamic model of input–output networks that incorporates adjustment costs of changing inputs. Our closed-form solution for the dynamics of the economy shows that temporary shocks to upstream sectors, whose output travels through long supply chains, have disproportionately significant welfare impact compared to affected sectors’ Domar weights. We conduct a spectral analysis of the U.S. production network and reveal that the welfare impact of temporary sectoral shocks can be represented by a low-dimensional, 3-factor structure.

Keywords: Production network; Adjustment costs; Dynamics; General equilibrium; Input–output (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:91:y:2024:i:6:p:3608-3644.

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