Working Paper: NBER ID: w24684
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: macroeconomics; heterogeneous agents; input-output networks; shock propagation; aggregation
JEL Codes: E23; E3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| productivity shocks (O49) | responses of various sectors in the economy (E44) |
| heterogeneity among consumers (D11) | nuanced understanding of shock propagation (C69) |
| non-homothetic preferences (D11) | breaks symmetry of shock propagation (C69) |
| external shocks + structure of the economy (F41) | relationship between productivity shocks and changes in industry-level productivity and markups (L16) |
| traditional models with representative agents (E13) | misleading implications in empirical analyses (C51) |