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16
Supply Chain Disruptions: Evidence from the Great East Japan Earthquake *
, 2014
"... This paper quantifies the spillover effect of exogenous shocks, such as earthquakes, on other firms through the supply chain network. Combining micro data on interfirm transaction networks and geographic information systems, we examine firms ’ sales growth and transaction relationships outside the ..."
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This paper quantifies the spillover effect of exogenous shocks, such as earthquakes, on other firms through the supply chain network. Combining micro data on interfirm transaction networks and geographic information systems, we examine firms ’ sales growth and transaction relationships outside the tsunamihit areas before and after the Great East Japan Earthquake. We find that sales growth shows a negative but insignificant effect for firms with suppliers in the affected areas and a negative and significant effect for firms with customers in the affected areas. When we focus on exiting firms in the affected areas as the firms from where the spillovers originated, the sales growth of linked firms outside the affected areas exhibits negative and significant effects for both upstream and downstream firms. Furthermore, significantly negative effects on downstream firms are shown for not only directly linked firms but also indirectly linked firms, with two and three degrees of separation. Finally, we find that firms tend to establish new transactions when they have transaction partners in the affected areas.
The Impact of Competition on Prices with Numerous Firms ∗
, 2013
"... We use extreme value theory (EVT) to develop insights about price theory. Our analysis reveals “detailindependent ” equilibrium properties that characterize a large family of models. We derive a formula relating equilibrium prices to the level of competition. When the number of firms is large, mark ..."
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We use extreme value theory (EVT) to develop insights about price theory. Our analysis reveals “detailindependent ” equilibrium properties that characterize a large family of models. We derive a formula relating equilibrium prices to the level of competition. When the number of firms is large, markups are proportional to 1 � ¡ � � 0 £ � −1 (1 − 1��) ¤ ¢, where � is the random utility noise distribution and � is the number of firms. This implies prices are pinned down by the tail properties of the noise distribution and that prices are independent of many other institutional details. The elasticity of the markup with respect to the number of firms is shown to be the EVT tail exponent of the distribution for preference shocks and in most leading cases is relatively insensitive to the number of firms. For example, for the Gaussian case asymptotic markups are proportional to 1 � √ ln �, implying a zero asymptotic elasticity of the markup with respect to the number of firms. Thus competition only exerts weak pressure on prices. We also study applications of the model, including endogenizing the level of noise.
Nets: Network Estimation for Time Series
, 2013
"... This work proposes novel network analysis techniques for multivariate time series. We dene the network of a multivariate time series as a graph where vertices denote the components of the process and edges denote non{zero long run partial correlations. We then introduce a two step lasso procedure, ..."
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This work proposes novel network analysis techniques for multivariate time series. We dene the network of a multivariate time series as a graph where vertices denote the components of the process and edges denote non{zero long run partial correlations. We then introduce a two step lasso procedure, called nets, to estimate high{dimensional sparse Long Run Partial Correlation networks. This approach is based on a var approximation of the process and allows to decompose the long run linkages into the contribution of the dynamic and contemporaneous dependence relations of the system. The large sample properties of the estimator are analysed and we establish conditions for consistent selection and estimation of the non{zero long run partial correlations. The methodology is illustrated with an application to a panel of U.S. bluechips.
Instabilities in large economies: aggregate volatility without idiosyncratic shocks
, 2014
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Intersectoral Linkages, Diverse Information, and Aggregate Dynamics in a Neoclassical Model ∗
, 2013
"... What do firms learn from their interactions in markets, and what are the implications for aggregate dynamics? We address this question in a multisector realbusiness cycle model with a sparse inputoutput structure. In each sector, firms observe their own productivity, along with the prices of thei ..."
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What do firms learn from their interactions in markets, and what are the implications for aggregate dynamics? We address this question in a multisector realbusiness cycle model with a sparse inputoutput structure. In each sector, firms observe their own productivity, along with the prices of their inputs and the price of their output. We show that general equilibrium marketclearing conditions place heavy constraints on average expectations, and characterize a set of cases where average expectations (and average dynamics) are exactly those of the fullinformation model. This “aggregate irrelevance ” of information can occur even when sectoral expectations and dynamics are quite different under partial information, and despite the fact that each sector represents a nonnegligible portion of the overall economy. In numerical examples, we show that even when the conditions for aggregate irrelevance of information are not met, aggregate dynamics remain nearly identical to the fullinformation model under reasonable calibrations.
Network Debt
, 2014
"... Given a financial network of liabilities, we consider the following question: which agent’s potential default would implicate the most number of agents in the network structure? Simply comparing each agent’s total debt completely ignores the structure of the network. For propagation effects of a po ..."
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Given a financial network of liabilities, we consider the following question: which agent’s potential default would implicate the most number of agents in the network structure? Simply comparing each agent’s total debt completely ignores the structure of the network. For propagation effects of a potential default, owing to a creditor who does not owe anybody and owing to a creditor who is heavily in debt himself clearly do not have the same implications even when the amount owed is the same. The liability network structure must be taken into account in order to capture downstream effects. We propose a general notion which addresses this issue quantitatively. Our notion yields a ranking of all agents in the network in terms of severity of default implications. Potential regulatory applications include stress testing for banks.
Monetary Policy Through Production Networks: Evidence from the Stock Market∗
, 2015
"... Monetary policy shocks have a large impact on aggregate stock market returns in narrow event windows around press releases by the Federal Open Market Committee. A one percentage point higher than expected Federal Funds rate leads to a drop in the stock market by 4 percentage points within a 30 minut ..."
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Monetary policy shocks have a large impact on aggregate stock market returns in narrow event windows around press releases by the Federal Open Market Committee. A one percentage point higher than expected Federal Funds rate leads to a drop in the stock market by 4 percentage points within a 30 minutes event window. We decompose the overall event into a direct (demand) effect and an indirect (network) effect using spatial autoregressions. We use the empirical inputoutput structure from the Bureau of Economic Analysis to construct a spatialweigthing matrix. We attribute 50 % to 85 % of the overall effect to indirect effects. The effect is robust to different sample periods, event windows, type of announcements, and is symmetric in the shock sign. We rationalize our findings in a simple model with intermediate inputs. Our findings indicate that production networks might not only be important for the propagation of idiosyncratic shocks but might also be a propagation mechanism of monetary policy to the real economy.
Working Paper Series The great collapse in
, 1833
"... Note: This Working Paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB This paper studies the great collapse in value added trade using a structural decomposition anal ..."
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Note: This Working Paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB This paper studies the great collapse in value added trade using a structural decomposition analysis. We show that changes in vertical specialisation accounted for almost half of the great trade collapse, while the previous literature on gross trade has mainly focused on final expenditure, inventory adjustment and adverse credit supply conditions. The decline in international production sharing during the crisis may partially account for the observed decrease in global trade elasticities in recent years. Second, we find that the drop in the overall level of demand accounted for roughly a quarter of the decline in value added exports while just under one third was due to compositional changes in final demand. Finally, we demonstrate that the dichotomy between services and manufacturing sectors observed in gross exports during the great trade collapse is not apparent in value added trade data.
Intermediation and Voluntary Exposure to
, 2013
"... I develop a model of financial sector in which endogenous intermediation among debt financed banks generates excessive systemic risk. The central idea is to explore the possibility that certain financial institutions are able to use their lending and borrowing decisions to tilt the division of surpl ..."
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I develop a model of financial sector in which endogenous intermediation among debt financed banks generates excessive systemic risk. The central idea is to explore the possibility that certain financial institutions are able to use their lending and borrowing decisions to tilt the division of surplus in their own favor through capturing intermediation spreads, even if the implied change in the structure of financial system hurts the total surplus of the economy. The paper predicts that there is excessive connection among banks who make risky investments and too little connection among those who mainly provide funding. Inefficiency arises because the financial institutions who intermediate among other institutions are exposed to excessive counterparty risk: replacing them with certain other banks mitigates the extent of failure when it is inevitable without hurting the optimal level of investment. In equilibrium, intermediators choose to over expose themselves to other risky banks and suffer the cost of failure due to contagion if they absorb enough rents when they survive.