Local Complementarities and Aggregate Fluctuations

Randal Verbrugge

Macroeconomics from University Library of Munich, Germany

Abstract: Accumulating microeconomic evidence points both to firm level adjustment lumpiness and to the significant influence of idiosyncratic disturbances. Do these matter for aggregate fluctuations, or do their effects largely vanish upon aggregation? This paper explores the implications of local strategic complementarities and firm-level adjustment lumpiness for aggregate fluctuations. It shows that small (industry-level), serially uncorrelated disturbances which are independent across industries can generate large, persistent aggregate fluctuations, even in the absence of aggregate shocks. This general amplification and propagation mechanism is explored in the context of a simple dynamic general equilibrium model. In this model, economy-wide fluctuations are driven entirely by independent industry-specific disturbances which are propagated via output market interactions. Results are encouraging: many key qualitative features of macroeconomic fluctuations are captured even by this simple model, indicating that this class of models, which builds upon microeconomic features that characterize the economy, surely merits further investigation.

JEL-codes: C61 C73 E3 E32 (search for similar items in EconPapers)
Pages: 43 pages
Date: 1998-09-30, Revised 1998-09-30
New Economics Papers: this item is included in nep-dge and nep-tid
Note: Type of Document - pdf; prepared on IBM PC; pages: 43; figures: included
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/9809/9809016.pdf.gz (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:9809016

Access Statistics for this paper

More papers in Macroeconomics from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ( this e-mail address is bad, please contact ).