Scandinavian Working Papers in Economics

Working Paper Series,
Uppsala University, Department of Economics

No 2019:6: Business Cycles and Production Networks

Maria Olsson ()
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Maria Olsson: Department of Economics, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

Abstract: Where do business cycles originate? The traditional view is that a business cycle is the result of shocks correlated across sectors. This view is complemented by a recently emerging literature showing that idiosyncratic shocks to large or highly interconnected sectors contribute to aggregate variation. This paper addresses the relative empirical importance of these two channels of business cycle variation. Results indicate that up to one-third of the business cycle is driven by idiosyncratic productivity variation together with network amplifications.

Keywords: Production Networks; Micro to Macro; Aggregate Volatility; Sectoral Distortions

JEL-codes: D52; D57; E32; L11

34 pages, February 14, 2019

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