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Micro Propagation and Macro Aggregation

Author

Listed:
  • David Baqaee

    (Department of Economics, University of California, Los Angeles, California, USA)

  • Elisa Rubbo

    (Booth School of Business, University of Chicago, Chicago, Illinois, USA)

Abstract

This article reviews a framework for studying the aggregation and propagation of microeconomic shocks in general equilibrium. We discuss the determinants of aggregate measures of real economic activity, like real GDP, real domestic absorption, and aggregate productivity in both efficient and inefficient environments. We also discuss how shocks from one set of producers are transmitted to other producers through prices and quantities. The framework we provide is amenable to generalization and can be used to study any collection of producers ranging from one isolated producer to an industry consisting of heterogeneous producers to an entire economy. We conclude with a brief survey of some of the applied questions that can be addressed using the analytical tools presented in this review and avenues for future work.

Suggested Citation

  • David Baqaee & Elisa Rubbo, 2023. "Micro Propagation and Macro Aggregation," Annual Review of Economics, Annual Reviews, vol. 15(1), pages 91-123, September.
    • Handle: RePEc:anr:reveco:v:15:y:2023:p:91-123
    DOI: 10.1146/annurev-economics-082322-012833
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    More about this item

    Keywords

    aggregation; aggregate productivity; misallocation; production networks; propagation; comovement;
    All these keywords.

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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