Production Networks in Macroeconomics
Start date: May 1, 2014,
End date: Apr 30, 2019
"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. Recent work in economics stresses that the structure of this production network is key in determining whether and how microeconomic shocks can propagate throughout the economy and shape aggregate outcomes.This project has two main goals. First, it aims to provide novel evidence that we can trace back the origins of business cycles and asset price fluctuations to individual technologies interconnected by input-supply relations. The particular questions it tries to answer are: (1) Can we have more direct, causal, evidence that these micro shocks do matter in practice for the evolution of aggregates? What are examples of these micro shocks in reality, how can we identify them and how do they propagate through input chains? (2) What are the asset pricing implications of this perspective on the micro origins of aggregate fluctuations? What is the relation between changes in the technology portfolio of an economy and the evolution of asset prices?The second aim of this project is to improve our understanding of the structure and evolution of these production networks by asking the following questions: (3) At the firm level, do more productive suppliers match with more productive customers and, if so, why? What is the typical duration of a supplier-customer match and does this vary across matches? What is the firm-level impact of matching with better suppliers or more productive customers? (4) How do inputs diffuse on a network of interconnected technologies? Do linkages across sectors facilitate input adoption and the diffusion of General Purpose Technologies? Can linkages across sectors help us understand not only which sectors will adopt a given input but also the order in which these sectors adopt it?"
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