The Network Origins of Aggregate Fluctuations

One of the main features of all modern economies is the very high level of interconnectivity between different firms and sectors, as firms depend on a rich array of intermediate goods through their increasingly more complex supply chains. While such interconnections enable specialization and enhance productivity, they can also function as a mechanism for propagation and amplification of risk. In this talk, I argue that in the presence of intersectoral input-output linkages, microeconomic idiosyncratic shocks may lead to aggregate fluctuations. In particular, I argue that as the economy becomes more disaggregated, the rate at which volatility of aggregate output decays is determined by the structure of the network capturing such linkages. The talk is based on a joint work with Daron Acemoglu, Vasco Carvalho and Asuman Ozdaglar. Affiliation: Alireza Tahbaz-Salehi is an assistant professor of Decision, Risk and Operations at the Columbia Business School. paper: http://www.columbia.edu/~at2761/NetworkOrigins.pdf http://www.ese.upenn.edu/events/events.html