IDEAS home Printed from https://ideas.repec.org/a/red/issued/04-11.html
   My bibliography  Save this article

How Important is the Intermediate Input Channel in Explaining Sectoral Employment Comovement over the Business Cycle?

Author

Listed:
  • Young Sik Kim

    (Seoul National University)

  • Kunhong Kim

Abstract

This paper investigates both analytically and quantitatively the role of intersectoral linkages in explaining sectoral employment comovement over the business cycle. We use a multisector dynamic stochastic general equilibrium model calibrated to the 2-digit SIC level intermediate input-use and capital-use tables and sectoral productivity shocks. With indivisible labor implying constant marginal utility of leisure, intersectoral linkages at the disaggregated level generate strong employment comovement across sectors. With divisible labor, however, procyclical marginal utility of leisure can dominate intersectoral linkages, implying some negative comovement. It further requires some form of the difficulty in reallocating labor across sectors, so that the substitutability of labor supply across sectors is relatively low. With divisible labor, a limited substitution of labor hours across sectors is shown to generate strong employment comovement over the business cycle. (Copyright: Elsevier)

Suggested Citation

  • Young Sik Kim & Kunhong Kim, 2006. "How Important is the Intermediate Input Channel in Explaining Sectoral Employment Comovement over the Business Cycle?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(4), pages 659-682, October.
    • Handle: RePEc:red:issued:04-11
    DOI: 10.1016/j.red.2006.06.002
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1016/j.red.2006.06.002
    Download Restriction: Access to full texts is restricted to ScienceDirect subscribers and institutional members. See http://www.sciencedirect.com/ for details.
    File URL: https://libkey.io/10.1016/j.red.2006.06.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Huffman, Gregory W. & Wynne, Mark A., 1999. "The role of intratemporal adjustment costs in a multisector economy," Journal of Monetary Economics, Elsevier, vol. 43(2), pages 317-350, April.
    2. Benhabib, Jess & Rogerson, Richard & Wright, Randall, 1991. "Homework in Macroeconomics: Household Production and Aggregate Fluctuations," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1166-1187, December.
    3. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1989. "Building Blocks of Market Clearing Business Cycle Models," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 247-302, National Bureau of Economic Research, Inc.
    4. McLaughlin, Kenneth J & Bils, Mark, 2001. "Interindustry Mobility and the Cyclical Upgrading of Labor," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 94-135, January.
    5. Backus, David K & Kehoe, Patrick J, 1992. "International Evidence of the Historical Properties of Business Cycles," American Economic Review, American Economic Association, vol. 82(4), pages 864-888, September.
    6. Geary, Patrick T & Kennan, John, 1982. "The Employment-Real Wage Relationship: An International Study," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 854-871, August.
    7. Hornstein, Andreas & Praschnik, Jack, 1997. "Intermediate inputs and sectoral comovement in the business cycle," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 573-595, December.
    8. Dale W. Jorgenson & Kevin J. Stiroh, 2000. "Raising the Speed Limit: U.S. Economic Growth in the Information Age," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(1), pages 125-236.
    9. Andreas Hornstein, 1998. "Inventory investment and the business cycle," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 49-71.
    10. Lawrence J. Christiano & Terry J. Fitzgerald, 1998. "The business cycle: it's still a puzzle," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 22(Q IV), pages 56-83.
    11. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
    12. Lawrence J. Christiano & Michele Boldrin & Jonas D. M. Fisher, 2001. "Habit Persistence, Asset Returns, and the Business Cycle," American Economic Review, American Economic Association, vol. 91(1), pages 149-166, March.
    13. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 39-69, February.
    14. Finn Kydland & Edward C. Prescott, 1980. "A Competitive Theory of Fluctuations and the Feasibility and Desirability of Stabilization Policy," NBER Chapters, in: Rational Expectations and Economic Policy, pages 169-198, National Bureau of Economic Research, Inc.
    15. Andreas Hornstein, 2000. "The business cycle and industry comovement," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 27-48.
    16. Horvath, Michael, 2000. "Sectoral shocks and aggregate fluctuations," Journal of Monetary Economics, Elsevier, vol. 45(1), pages 69-106, February.
    17. repec:fth:harver:1487 is not listed on IDEAS
    18. Lawrence J. Christiano & Jonas D. M. Fisher, 2003. "Stock Market and Investment Goods Prices: Implications for Macroeconomics," NBER Working Papers 10031, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ivan Petrella & Raffaele Rossi & Emiliano Santoro, 2019. "Monetary Policy with Sectoral Trade‐Offs," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(1), pages 55-88, January.
    2. Christian vom Lehn & Thomas Winberry, 2022. "The Investment Network, Sectoral Comovement, and the Changing U.S. Business Cycle," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 137(1), pages 387-433.
    3. Yongsung Chang & Sunoong Hwang, 2015. "Asymmetric Phase Shifts in U.S. Industrial Production Cycles," The Review of Economics and Statistics, MIT Press, vol. 97(1), pages 116-133, March.
    4. Cardi, Olivier & Restout, Romain, 2015. "Imperfect mobility of labor across sectors: a reappraisal of the Balassa–Samuelson effect," Journal of International Economics, Elsevier, vol. 97(2), pages 249-265.
    5. Dissou, Yazid & Karnizova, Lilia, 2012. "Emissions Cap or Emissions Tax?," Conference papers 332189, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    6. Ling-Yun He & Liang Wang, 2019. "Import Liberalization of Intermediates and Environment: Empirical Evidence from Chinese Manufacturing," Sustainability, MDPI, vol. 11(9), pages 1-15, May.
    7. Chandranath Amarasekara & George J. Bratsiotis, 2012. "Monetary policy and real wage cyclicality," Applied Economics, Taylor & Francis Journals, vol. 44(33), pages 4391-4408, November.
    8. Christian vom Lehn & Thomas Winberry, 2018. "The Changing Nature of Sectoral Comovement," 2018 Meeting Papers 277, Society for Economic Dynamics.
    9. Petrella, Ivan & Santoro, Emiliano, 2011. "Input–output interactions and optimal monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 35(11), pages 1817-1830.
    10. Guisinger, Amy Y. & Owyang, Michael T. & Soques, Daniel, 2024. "Industrial Connectedness and Business Cycle Comovements," Econometrics and Statistics, Elsevier, vol. 29(C), pages 132-149.
    11. Sean Holly & Ivan Petrella, 2012. "Factor Demand Linkages, Technology Shocks, and the Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 948-963, November.
    12. Andrea Papetti, 2021. "Population aging, relative prices and capital flows across the globe," Temi di discussione (Economic working papers) 1333, Bank of Italy, Economic Research and International Relations Area.
    13. Yi Jin & Zhixiong Zeng, 2009. "Money, Credit, And Business Cycle Comovement," Pacific Economic Review, Wiley Blackwell, vol. 14(2), pages 275-293, May.
    14. Luisito Bertinelli & Olivier Cardi & Romain Restout, 2015. "Technical Change Biased Toward the Traded Sector and Labor Market Frictions," Working Papers halshs-01252508, HAL.
    15. Swapnil Singh & Roel Beetsma, 2018. "Optimal Monetary Policy Under Sectoral Interconnections," De Economist, Springer, vol. 166(3), pages 309-336, September.
    16. Dissou, Yazid & Karnizova, Lilia, 2016. "Emissions cap or emissions tax? A multi-sector business cycle analysis," Journal of Environmental Economics and Management, Elsevier, vol. 79(C), pages 169-188.
    17. Sean Holly & Ivan Petrella, 2008. "Factor demand linkages and the business cycle: interpreting aggregate fluctuations as sectoral fluctuations," CDMA Conference Paper Series 0809, Centre for Dynamic Macroeconomic Analysis.
    18. Valery Charnavoki, 2019. "International Risk-Sharing and Optimal Monetary Policy in a Small Commodity-Exporting Economy," Russian Journal of Money and Finance, Bank of Russia, vol. 78(2), pages 3-27, June.
    19. Ivan Petrella & Raffaele Rossi & Emiliano Santoro, 2012. "Monetary Policy with Sectoral Linkages and Durable Goods," Discussion Papers 12-19, University of Copenhagen. Department of Economics.
    20. Shaowen Luo, 2020. "Propagation of Financial Shocks in an Input-Output Economy with Trade and Financial Linkages of Firms," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 36, pages 246-269, April.
    21. Emilio Fernández Corugedo & Mrs. Esther Perez Ruiz, 2014. "The EU Services Directive: Gains from Further Liberalization," IMF Working Papers 2014/113, International Monetary Fund.
    22. Nath, Hiranya K., 2016. "A note on the cyclical behavior of sectoral employment in the U.S," Economic Analysis and Policy, Elsevier, vol. 50(C), pages 52-61.
    23. Ivan Petrella & Emiliano Santoro, "undated". "Optimal Monetary Policy with Durable Consumption Goods and Factor Demand Linkages," EPRU Working Paper Series 2009-04, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised May 2009.
    24. repec:wrk:wrkemf:14 is not listed on IDEAS
    25. Miranda-Pinto, Jorge & Young, Eric R., 2019. "Comparing dynamic multisector models," Economics Letters, Elsevier, vol. 181(C), pages 28-32.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Veldkamp, Laura & Wolfers, Justin, 2007. "Aggregate shocks or aggregate information? Costly information and business cycle comovement," Journal of Monetary Economics, Elsevier, vol. 54(Supplemen), pages 37-55, September.
    2. Sergio Rebelo, 2005. "Real Business Cycle Models: Past, Present, and Future," NBER Working Papers 11401, National Bureau of Economic Research, Inc.
    3. Junhee Lee, 2004. "sticky prices and comovement of business cycle," Econometric Society 2004 Far Eastern Meetings 582, Econometric Society.
    4. Andreas Hornstein, 2000. "The business cycle and industry comovement," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 27-48.
    5. Lawrence J. Christiano & Michele Boldrin & Jonas D. M. Fisher, 2001. "Habit Persistence, Asset Returns, and the Business Cycle," American Economic Review, American Economic Association, vol. 91(1), pages 149-166, March.
    6. Francesco Busato, 2004. "Relative Demand Shocks," Economics Working Papers 2004-11, Department of Economics and Business Economics, Aarhus University.
    7. Sergio Rebelo, 2005. "Real Business Cycle Models: Past, Present and Future," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(2), pages 217-238, June.
    8. Yaniv Yedid-Levi, 2016. "Why does employment in all major sectors move together over the business cycle?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 22, pages 131-156, October.
    9. Christian vom Lehn & Thomas Winberry, 2018. "The Changing Nature of Sectoral Comovement," 2018 Meeting Papers 277, Society for Economic Dynamics.
    10. Caunedo, Julieta, 2020. "Aggregate fluctuations and the industry structure of the US economy," European Economic Review, Elsevier, vol. 129(C).
    11. Jose Maria Da Rocha & Diego Restuccia, 2006. "The Role of Agriculture in Aggregate Business Cycles," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(3), pages 455-482, July.
    12. Jose Maria Da Rocha & Diego Restuccia, 2002. "The Role of Agriculture in Aggregate Business Cycle Fluctuations," Working Papers diegor-02-04, University of Toronto, Department of Economics.
    13. Christoph Görtz & John D. Tsoukalas, 2013. "Sector Specific News Shocks in Aggregate and Sectoral Fluctuations," CESifo Working Paper Series 4269, CESifo.
    14. Hornstein, Andreas & Praschnik, Jack, 1997. "Intermediate inputs and sectoral comovement in the business cycle," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 573-595, December.
    15. Yongsung Chang & Sunoong Hwang, 2015. "Asymmetric Phase Shifts in U.S. Industrial Production Cycles," The Review of Economics and Statistics, MIT Press, vol. 97(1), pages 116-133, March.
    16. F. Owen Irvine & Scott Schuh, 2007. "The roles of comovement and inventory investment in the reduction of output volatility," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
    17. Görtz, Christoph & Tsoukalas, John, 2011. "News and financial intermediation in aggregate and sectoral fluctuations," MPRA Paper 38986, University Library of Munich, Germany, revised Mar 2012.
    18. Christopher Baum & Neslihan Ozkan & Mustafa Caglayan, 2003. "Sectoral fluctuations in U.K. firms' investment expenditures," Economics Bulletin, AccessEcon, vol. 5(13), pages 1-10.
    19. Yi Jin & Zhixiong Zeng, 2009. "Money, Credit, And Business Cycle Comovement," Pacific Economic Review, Wiley Blackwell, vol. 14(2), pages 275-293, May.
    20. repec:pra:mprapa:38985 is not listed on IDEAS
    21. Kim, Jongsoo & Kim, Kwang Hwan & Shim, Myungkyu, 2023. "Are all economic fluctuations bad for consumers?," Journal of Economic Dynamics and Control, Elsevier, vol. 156(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:issued:04-11. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.