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Structural propagation in a production network with restoring substitution elasticities

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  • Satoshi Nakano
  • Kazuhiko Nishimura

Abstract

We model an economy-wide production network by cascading binary compounding functions, based on the sequential processing nature of the production activities. As we observe a hierarchy among the intermediate processes spanning the empirical input--output transactions, we utilize a stylized sequence of processes for modeling the intra-sectoral production activities. Under the productivity growth that we measure jointly with the state-restoring elasticity parameters for each sectoral activity, the network of production completely replicates the records of multi-sectoral general equilibrium prices and shares for all factor inputs observed in two temporally distant states. Thereupon, we study propagation of a small exogenous productivity shock onto the structure of production networks by way of hierarchical clustering.

Suggested Citation

  • Satoshi Nakano & Kazuhiko Nishimura, 2017. "Structural propagation in a production network with restoring substitution elasticities," Papers 1701.02216, arXiv.org, revised Apr 2018.
    • Handle: RePEc:arx:papers:1701.02216
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    References listed on IDEAS

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    Cited by:

    1. Nakano, Satoshi & Nishimura, Kazuhiko, 2021. "Productivity propagation with networks transformation," Journal of Macroeconomics, Elsevier, vol. 67(C).
    2. Satoshi Nakano & Kazuhiko Nishimura, 2019. "Productivity propagation with networks transformation," Papers 1909.09641, arXiv.org, revised Apr 2020.

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