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How Important Are Sectoral Shocks?†

How Important Are Sectoral Shocks?† AbstractI quantify the contribution of sectoral shocks to business cycle fluctuations in aggregate output. I develop and estimate a multi-industry general equilibrium model in which each industry employs the material and capital goods produced by other sectors. Using data on US industries' input prices and input choices, I find that the goods produced by different industries are complements to one another as inputs in downstream industries' production functions. These complementarities indicate that industry-specific shocks are substantially more important than previously thought, accounting for at least half of aggregate volatility. (JEL D12, D24, E23, E32, L14) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Macroeconomics American Economic Association

How Important Are Sectoral Shocks?†

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Publisher
American Economic Association
Copyright
Copyright © 2017 © American Economic Association
ISSN
1945-7715
DOI
10.1257/mac.20160353
Publisher site
See Article on Publisher Site

Abstract

AbstractI quantify the contribution of sectoral shocks to business cycle fluctuations in aggregate output. I develop and estimate a multi-industry general equilibrium model in which each industry employs the material and capital goods produced by other sectors. Using data on US industries' input prices and input choices, I find that the goods produced by different industries are complements to one another as inputs in downstream industries' production functions. These complementarities indicate that industry-specific shocks are substantially more important than previously thought, accounting for at least half of aggregate volatility. (JEL D12, D24, E23, E32, L14)

Journal

American Economic Journal: MacroeconomicsAmerican Economic Association

Published: Oct 1, 2017

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