Structural propagation in a production network with restoring substitution elasticities
Abstract
We model an economy-wide production network by cascading binary compounding functions, based on the sequential processing nature of the production activities. As we observe a hierarchy among the intermediate processes spanning the empirical input--output transactions, we utilize a stylized sequence of processes for modeling the intra-sectoral production activities. Under the productivity growth that we measure jointly with the state-restoring elasticity parameters for each sectoral activity, the network of production completely replicates the records of multi-sectoral general equilibrium prices and shares for all factor inputs observed in two temporally distant states. Thereupon, we study propagation of a small exogenous productivity shock onto the structure of production networks by way of hierarchical clustering.
Cite
@article{arxiv.1701.02216,
title = {Structural propagation in a production network with restoring substitution elasticities},
author = {Satoshi Nakano and Kazuhiko Nishimura},
journal= {arXiv preprint arXiv:1701.02216},
year = {2023}
}