"Networks of Strategic Interactions and Aggregate Volatility"
First version: June 2011.
Last version: January 2014.
(previously circulated as "Do aggregate fluctuations depend on the network structure of firms and sectors?" and "How Do Aggregate Fluctuations Depend on the Network Structure of the Economy?")
We study the aggregate volatility of an economy where agents face a network of strategic interactions. We show that the aggregate volatility depends on the network structure in two ways. On the one hand, the more connected the economy, the lower the aggregate volatility. On the other hand, the more concentrated the network, the higher the aggregate volatility. The concentration of the network depends on the structure of indirect strategic interactions of any length. Moreover, we explain how the covariance in equilibrium outcomes depends on the relative positions of the agents in the network. We provide an intuition of the theoretical predictions using US data on intersectoral linkages and firms' diversification patterns.
Aggregate volatility; Networks; Strategic interactions.
C67, D57, E32.
Previous working paper versions:
Working Papers in Economics 278, Universitat de Barcelona (2012).
SSRN working paper (2012).
- Network Workshop, Izmir University of Economics, Izmir, April 2013.
- XXVII Annual Congress of the European Economic Association, Málaga, August 2012.
- Cantabria Nobel Campus - Macroeconomics Workshop, Santander, June 2012.
- Seminar at University of Vigo, February 2012.
- XXXVI Simposio de la Asociación Española de Economía, Málaga, December 2011.
- BIG Seminar at University of Barcelona, Barcelona, November 2011.
- Annual Meeting of ASSET, CEFAGE-UE, Evora, October 2011.
- Internal Workshop on Dynamic General Equilibrium, CREB, University of Barcelona, July 2011.
- X Conference on Research in Economic Theory and Econometrics (CRETE), AUEB, Milos, July 2011.
- XI Doctoral Workshop in Economic Theory and Econometrics (MOOD), EIEF, Rome, July 2011.
- IDEA20 Conference, Universitat Autònoma de Barcelona, June 2011.
- Seminar at Bank of Italy, June 2011.
- Annual Graz-Udine Summer Workshop, CEPET, Udine, June 2011.
- Workshop on Advances in Business Cycles and Economic Growth Analysis, RCEA, Rimini, May 2011.
- II Eurasia Business and Economics Society Conference, IERA, Istanbul, May 2010.