Distortions in Production Networks
Author | : Saki Bigio |
Publisher | : |
Total Pages | : 0 |
Release | : 2016 |
ISBN-10 | : OCLC:1194658304 |
ISBN-13 | : |
Rating | : 4/5 ( Downloads) |
Download or read book Distortions in Production Networks written by Saki Bigio and published by . This book was released on 2016 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: How does an economy's production structure determine its macroeconomic response to sectoral distortions? We study a static framework in which production is organized in an input-output network and firms' production decisions are distorted. We show how sectoral distortions manifest at the aggregate level via two channels: total factor productivity and the labor wedge. The strength of each channel depends jointly on the input-output structure and the distribution of shocks. Near efficiency, distortions generate zero first-order effects on TFP but non-zero first-order effects on the labor wedge; the latter we show to be determined by the sector's network "centrality." We apply the model to the 2008-09 Financial Crisis and find that the U.S. input-ouput network may have amplified financial distortions by roughly a factor of two relative to a counterfactual economy devoid of intermediate good trade.