Related papers: Rigidity and default in production networks
This paper investigates how economic shocks propagate and amplify through the input-output network connecting industrial sectors in developed economies. We study alternative models of diffusion on networks and we calibrate them using…
For centuries, national economies created wealth by engaging in international trade and production. The resulting international supply networks not only increase wealth for countries, but also create systemic risk: economic shocks,…
Poor economies not only produce less; they typically produce things that involve fewer inputs and fewer intermediate steps. Yet the supply chains of poor countries face more frequent disruptions---delivery failures, faulty parts, delays,…
Will a large economy be stable? Building on Robert May's original argument for large ecosystems, we conjecture that evolutionary and behavioural forces conspire to drive the economy towards marginal stability. We study networks of firms in…
We consider a dynamical model of distress propagation on complex networks, which we apply to the study of financial contagion in networks of banks connected to each other by direct exposures. The model that we consider is an extension of…
In today's global economy, supply chain (SC) entities have become increasingly interconnected with demand and supply relationships due to the need for strategic outsourcing. Such interdependence among firms not only increases efficiency but…
We model sectoral production by cascading binary compounding processes. The sequence of processes is discovered in a self-similar hierarchical structure stylized in the economy-wide networks of production. Nested substitution elasticities…
According to theoretical models of valuing risky corporate securities, risk of default is primary component in overall yield spread. However, sizable empirical literature considers it otherwise by giving more importance to non-default risk…
I study the role of industries' position in supply chains in shaping the transmission of final demand shocks. First, I use a novel shift-share design leveraging destination-specific final demand shocks and a new measure of destination…
As impressively shown by the financial crisis in 2007/08, contagion effects in financial networks harbor a great threat for the stability of the entire system. Without sufficient capital requirements for banks and other financial…
Production in an economy is a set of firms' activities as suppliers and customers; a firm buys goods from other firms, puts value added and sells products to others in a giant network of production. Empirical study is lacking despite the…
Supply chain disruptions constitute an often underestimated risk for financial stability. As in financial networks, systemic risks in production networks arises when the local failure of one firm impacts the production of others and might…
We model the production of complex goods in a large supply network. Each firm sources several essential inputs through relationships with other firms. Individual supply relationships are at risk of idiosyncratic failure, which threatens to…
We develop a model where firms determine the price at which they sell their differentiable goods, the volume that they produce, and the inputs (types and amounts) that they purchase from other firms. A steady-state production network…
Understanding disaggregate channels in the transmission of monetary policy is of crucial importance for effectively implementing policy measures. We extend the empirical econometric literature on the role of production networks in the…
In this paper, a new reliability model has been developed for a single system degrading stochastically which experiences soft and hard failure. Soft failure occurs when the physical deterioration level of the system is greater than a…
Using a semi-structural approach, the paper identifies how heterogeneity and financial frictions affect the transmission of aggregate shocks. Approximating a heterogeneous agent model around the representative agent allocation can…
In the pursuit of ever increasing efficiency and growth, our economies have evolved to remarkable degrees of complexity, with nested production processes feeding each other in order to create products of greater sophistication from less…
The European sovereign debt crisis has impaired many European banks. The distress on the European banks may transmit worldwide, and result in a large-scale knock-on default of financial institutions. This study presents a computer…
Modern macroeconomic theories were unable to foresee the last Great Recession and could neither predict its prolonged duration nor the recovery rate. They are based on supply-demand equilibria that do not exist during recessionary shocks.…