"Ownership networks and aggregate volatility."
First version: February 2013.
Last version: February 2015.
We study how aggregate volatility is influenced by the propagation of idiosyncratic shocks across firms through the network of ownership relations. We use detailed data on cross-holdings as well as the relevant balance sheet information for almost the entire universe of Italian limited liability firms over the period 2005-2013. We first document that the ownership network matters for the correlation of firms' sales. Then, we construct a model where firms are linked through ownership relations and have limited access to credit markets. We characterize the aspects of the network structure that are important for the dynamics of the economy. A calibration to the key features of the Italian economy shows that the volatility implied by the model may account for a sizeable percentage of actual GDP fluctuations. Lastly, we conduct a counterfactual exercise to isolate the role played by the network structure itself in the propagation of idiosyncratic shocks at the aggregate level.
Ownership networks; Firms; Financial frictions; Business cycles.
E32; C68; D58.
Previous working paper versions:
Temi di discussione (Working papers) 1004, Bank of Italy (2015).
2015 Meeting papers n. 1157, Society of Economic Dynamics (2015).
- XXVI SED Annual Meeting, Warsaw, June 2015.
- ECB-CBRT joint conference on "Assessing the macroeconomic implications of financial and production networks," Izmir, September 2014.
- Barcelona Summer Forum "Firms in the Global Economy", Barcelona GSE and ESADE, Barcelona, June 2014.
- XVII World Congress of the International Economic Association (IEA), Dead Sea, June 2014.
- XII Workshop of Macroeconomic Dynamics: Theory and Applications, University of Bologna and SAIS Europe - The Johns Hopkins University, Bologna, December 2013.
- Seminar at University of St Andrews, November 2013.
- Stats in Paris - Statistics and Econometrics of Networks, ENSAE ParisTech, Paris, November 2013.
- 54th Annual Conference of the Italian Economic Association (SIE), Bologna, October 2013.
- XXVIII Annual Congress of the European Economic Association, Gothenburg, August 2013.
- XII Conference on Research on Economic Theory & Econometrics (CRETE), Naxos, July 2013.
- Lunch seminar at the Bank of Italy, Rome, July 2013.
- INET Workshop on "Interlinkages and Systemic Risk," Ancona, July 2013.
- IV International Workshop on Social Network Analysis (ARS'13), Rome, June 2013.