I have been awarded an ERC starting grant to undertake research into the role of production networks in macroeconomics.
A modern economy is an intricately linked web of specialized production units, each relying on the flow of inputs from their suppliers to produce their own output which, in turn, is routed towards other downstream units. Recent work in economics stresses that the structure of this production network is key in determining whether and how microeconomic shocks – affecting only a particular firm or technology – can propagate throughout the economy and shape aggregate outcomes. If this is the case, understanding the structure of this production network can better inform both academics on the origins of aggregate fluctuations and policymakers on how to prepare for and recover from adverse shocks that disrupt these production chains.
This emerging literature on the role of production networks in macroeconomic fluctuations has opened up the possibility of tracing back the origins of business cycles to disaggregated technologies interacting through input-supply relations. However, as we further our understanding of how production chains can affect aggregate outcomes, the need for convincing empirical evidence on whether the mechanisms emphasized by theory are indeed borne out in the data becomes first-order. This is the first aim of the macronets project.
At the same time, once one recognizes that the network structure of input-supply relations is linked to macroeconomic outcomes a more ambitious set of questions emerges. What determines the structure of these production networks? How do they evolve over time? The second aim of the macronets project revolves around these questions.