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

Roberto Roson and Martina Sartori

No 332434, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

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.

Keywords: Research Methods/ Statistical Methods; Research and Development/Tech Change/Emerging Technologies (search for similar items in EconPapers)
Pages: 21
Date: 2014
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Working Paper: Why can sectoral shocks lead to sizable macroeconomic fluctuations? Assessing alternative theories by means of stochastic simulation with a general equilibrium model (2014)
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