Working Paper: CEPR ID: DP13006
Authors: David Rezza Baqaee; Emmanuel Farhi
Abstract: The goal of this paper is to simultaneously unbundle two interacting reduced-form building blocks of traditional macroeconomic models: the representative agent and the aggregate production function. We introduce a broad class of disaggregated general equilibrium models with Heterogeneous Agents and Input-Output networks (HA-IO). We characterize their properties through two sets of results describing the propagation and the aggregation of shocks. Our results shed light on many seemingly disparate applied questions, such as: sectoral comovement in business cycles; factor-biased technical change in task-based models; structural transformation; the effects of corporate taxation; and the dependence of fiscal multipliers on the composition of government spending.
Keywords: Production Networks; Heterogeneous Agents; Comovement; Propagation; Aggregation
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Productivity shock (O49) | Sales response (M31) |
| Sales response (M31) | Symmetric propagation across producers (D51) |
| Heterogeneous consumers and non-homothetic preferences (D11) | Asymmetric propagation of shocks (F41) |
| Changes in industry-level aggregates (L16) | Influenced by external shocks and interdependencies (F41) |