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Journal of Economic Perspectives: Vol. 28 No. 4 (Fall 2014)
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From Micro to Macro via Production Networks
Article Citation
Carvalho, Vasco M. 2014. "From Micro to Macro via Production Networks."
Journal of Economic Perspectives,
28(4): 23-48.
DOI: 10.1257/jep.28.4.23
DOI: 10.1257/jep.28.4.23
Abstract
A modern economy is an intricately linked web of specialized production units, each relying on the flow of inputs from their suppliers to produce their own output which, in turn, is routed towards other downstream units. In this essay, I argue that this network perspective on production linkages can offer novel insights on how local shocks occurring along this production network can propagate across the economy and give rise to aggregate fluctuations. First, I discuss how production networks can be mapped to a standard general equilibrium setup. In particular, through a series of stylized examples, I demonstrate how the propagation of sectoral shocks—and hence aggregate volatility—depends on different arrangements of production, that is, on different "shapes" of the underlying production network. Next I explore, from a network perspective, the empirical
properties of a large-scale production network as given by detailed US input-output data. Finally I address how theory and data on production networks can be usefully combined to shed light on comovement and aggregate fluctuations.
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Authors
Carvalho, Vasco M. (U Cambridge)
JEL Classifications
D57: General Equilibrium and Disequilibrium: Input-Output Tables and Analysis
D85: Network Formation and Analysis: Theory
E32: Business Fluctuations; Cycles
L14: Transactional Relationships; Contracts and Reputation; Networks
D85: Network Formation and Analysis: Theory
E32: Business Fluctuations; Cycles
L14: Transactional Relationships; Contracts and Reputation; Networks
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