Working Paper: CEPR ID: DP17620
Authors: David Rezza Baqaee; Elisa Rubbo
Abstract: This paper reviews a framework for studying the aggregation and propagation of microeconomic shocks in general equilibrium. We discuss the determinants of aggregate measures of real economic activity, like real GDP, real domestic absorption, and aggregate productivity in both efficient and inefficient environments. We also discuss how shocks from one set of producers are transmitted to other producers through prices and quantities. The framework we provide is amenable to generalization and can be used to study any collection of producers ranging from one isolated producer, to an industry consisting of heterogeneous producers, to an entire economy. We conclude with a brief survey of some of the applied questions that can be addressed using the analytical tools presented in this review and avenues for future work.
Keywords: aggregation; shock propagation
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 |
|---|---|
| microeconomic shocks (E39) | aggregate economic activity (E10) |
| changes in technology (O33) | aggregate economic activity (E10) |
| distortions (H31) | aggregate economic activity (E10) |
| resource allocation changes around efficient equilibrium (D51) | aggregate economic activity (E10) |
| external inputs and technologies (O36) | aggregate impact (C43) |
| resource reallocation towards underperforming producers (D29) | aggregate productivity and output (E23) |
| microeconomic adjustments (E69) | macroeconomic changes (E39) |
| propagation of shocks through linkages (F65) | overall economic performance (P47) |