I quantify the contribution of sectoral shocks to business cycle fluctuations in aggregate output. I develop and estimate a multi-industry general equilibrium model in which each industry employs the material and capital goods produced by other sectors. Using data on US industries' input prices and input choices, I find that the goods produced by different industries are complements to one another as inputs in downstream industries' production functions. These complementarities indicate that industry-specific shocks are substantially more important than previously thought, accounting for at least half of aggregate volatility.
"How Important Are Sectoral Shocks?"
American Economic Journal: Macroeconomics,
Consumer Economics: Empirical Analysis
Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
Business Fluctuations; Cycles
Transactional Relationships; Contracts and Reputation; Networks