Network-based macro fluctuations: Evidence from Lithuania
Mihnea Constantinescu and
Kristina Barauskaite (Griskeviciene)
No 6, Bank of Lithuania Discussion Paper Series from Bank of Lithuania
Do inter-sectoral linkages of intermediate products affect the spread of sectoral shocks at the aggregate level in Lithuania, a small and open economy? We answer this question by: i) constructing the domestic sector-by-sector direct requirements table using the Lithuanian interindustry transactions tables, and ii) applying Acemoglu et al. (2012)'s network-based methodology and Gabaix and Ibragimov (2011)'s modified log rank-log size regression to analyse the nature of inter-sectoral linkages. Our results indicate that the direct and indirect inter-sectoral linkages cause aggregate volatility to decay at a rate lower than square root of n - the rate predicted by the standard diversification argument. Furthermore, indirect linkages play an important role in the above-mentioned process, supporting the findings of Acemoglu et al. (2012). These results suggest that the inter-sectoral network of linkages represent a potential propagation mechanism for idiosyncratic shocks throughout the Lithuanian economy.
Keywords: Input-Output Linkages; Inter-sectoral Network; Aggregate Volatility; SmallOpen Economy; Complexity Economics (search for similar items in EconPapers)
JEL-codes: C13 C46 C67 E00 (search for similar items in EconPapers)
Pages: 27 pages
New Economics Papers: this item is included in nep-cis and nep-mac
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