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Intersectoral Network-Based Channel of Aggregate TFP Shocks

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  • Kristina Barauskaite

    (Bank of Lithuania & ISM University of Management and Economics)

  • Anh D.M. Nguyen

    (Bank of Lithuania & Vilnius University)

Abstract

This study investigates the role of intersectoral networks in the transmission of aggregate technology shocks to sectors’ growth. First, we develop a theoretical model to obtain insights into the propagation of shocks through input-output linkages, which suggests that the network effect arises via sectoral downstream linkages. We then quantitatively assess this theoretical implication with US manufacturing industries, where the aggregate technology shocks are derived from a dynamic factor model. We find that aggregate technology shocks lead to an increase in the output growth of the sector, both directly and indirectly via its intersectoral linkages. More interestingly, we document a crucial role of the intersectoral network channel, which contributes about 50 percent of the total effect. In addition, the network-based effect comes mostly from downstream linkages of sectors, which is broadly consistent with theory.

Suggested Citation

  • Kristina Barauskaite & Anh D.M. Nguyen, 2019. "Intersectoral Network-Based Channel of Aggregate TFP Shocks," Bank of Lithuania Working Paper Series 63, Bank of Lithuania.
    • Handle: RePEc:lie:wpaper:63
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    1. Kristina Barauskaite & Anh Dinh Minh Nguyen, 2021. "Direct and network effects of idiosyncratic TFP shocks," Empirical Economics, Springer, vol. 60(6), pages 2765-2793, June.

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    More about this item

    Keywords

    Input-Output Linkages; Intersectoral Network; Business Cycle; Aggregate Technology Shocks; TFP; Manufacturing Industries; Productivity;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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