Tag: Production networks

UK productivity puzzle – a production network perspective

Marko Melolinna

Input/output networks are important in propagating shocks in an economy. For understanding the aggregate effects of shocks, it is useful to know which sectors are central (ie, providing a lot of inputs to a lot of other sectors) and how the central sectors are affected by and propagate the shocks to other sectors. In a new Staff Working Paper, my co-author and I build a structural model incorporating key features of the sectoral production input/output network in the UK, and then use the model to help us understand UK productivity dynamics since the global financial crisis (GFC). We find that the slower productivity growth rates since the GFC are mainly due to negative shocks originating from the manufacturing sector.

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Can sectoral supply shocks have aggregate demand consequences?

Ambrogio Cesa-Bianchi and Andrea Ferrero

Restrictions on activity to curb the spread of Covid-19 led to a shutdown of specific parts of the economy. These lockdown measures can be thought of as a shock that suddenly decreases the supply of affected sectors, which lowers output and increases their price. Guerrieri et al (2020) propose a theoretical model of ‘Keynesian supply shocks’ where a sectoral supply shock triggers knock-on effects on demand in other sectors which, if strong enough, can lead to a fall in aggregate prices and output – thus resembling an aggregate demand shock. In a recent paper, we provide empirical evidence supporting this hypothesis using pre-Covid data. Our results suggest a different way to look at the Covid crisis and business cycles in general.

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