Dynamic Diffusion in Production Networks

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: I show three properties in which a dynamic input-output economy with time to build differs from a static economy: first, a standard result in a Cobb-Douglas production networks is that productivity shocks diffuse downstream while demand shocks diffuse upstream. This fact interacts with the discount rate to generate a potentially quite different aggregate impact in different sectors. With time to build the direction of the diffusion is the opposite, and demand shocks also diffuse downstream. Second, I show that time to build leads to less comovement across sectors. Third, I provide bounds on the recovery time of the economy hit by a shock.

Keywords: production networks; diffusion; propagation; shocks. (search for similar items in EconPapers)
JEL-codes: D57 D85 E32 (search for similar items in EconPapers)
Date: 2024-03-14
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