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Why can sectoral shocks lead to sizable macroeconomic fluctuations? Assessing alternative theories by means of stochastic simulation with a general equilibrium model

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  • Roson, Roberto
  • Sartori, Martina
Abstract
We use a global, computable general equilibrium model to estimate how idiosyncratic, independent shocks to sectoral productivity could bring about variations to real income in a country. Some theories have been elaborated to explain why relatively small sectoral shocks could lead to sizable macroeconomic variability. We process the results of our simulation experiments to assess the relative importance of a number of potential explanations, as well as of other factors not accounted for in theoretical models. We find that the variability of the GDP, induced by sectoral shocks, is basically determined by the degree of industrial concentration. We interpret the absence of significant inter-industry propagation effects as a consequence of the fact that, typically, a non-negligible share of intermediate production factors is imported.

Suggested Citation

  • Roson, Roberto & Sartori, Martina, 2014. "Why can sectoral shocks lead to sizable macroeconomic fluctuations? Assessing alternative theories by means of stochastic simulation with a general equilibrium model," Conference papers 332434, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:332434
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    References listed on IDEAS

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    More about this item

    Keywords

    Research Methods/ Statistical Methods; Research and Development/Tech Change/Emerging Technologies;

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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