Working Paper: NBER ID: w30538
Authors: David 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: No keywords provided
JEL Codes: E01
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| changes in technology and distortions (O33) | aggregate economic activity (E10) |
| microeconomic disturbances (D59) | aggregate variables like GDP (E10) |
| shocks (E32) | downstream consumers (D16) |
| shocks (E32) | upstream suppliers (L14) |
| reallocating resources towards underutilized producers (D24) | aggregate productivity and output (E23) |