American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Flexibility and Frictions in Multisector Models
American Economic Journal: Macroeconomics
vol. 14,
no. 3, July 2022
(pp. 450–80)
Abstract
We show that during the Great Recession, more-flexible sectors paid lower sectoral bond spreads. We rationalize this fact with a model with input-output linkages, heterogeneous elasticities, and binding working capital constraints in the use of intermediates. We show that the difference in flexibility between upstream and downstream sectors is key for determining the role of input-output linkages in amplifying or mitigating distortions. Calibrating the model to the US economy, we find that our sectoral elasticity estimates amplify distortions by a factor of 1.7 compared to the Cobb-Douglas case, and generate an input-output multiplier 1.2 times the homogeneous elasticity case.Citation
Miranda-Pinto, Jorge, and Eric R. Young. 2022. "Flexibility and Frictions in Multisector Models." American Economic Journal: Macroeconomics, 14 (3): 450–80. DOI: 10.1257/mac.20190097Additional Materials
JEL Classification
- E23 Macroeconomics: Production
- E32 Business Fluctuations; Cycles
- E43 Interest Rates: Determination, Term Structure, and Effects
- E44 Financial Markets and the Macroeconomy
- H56 National Security and War
- L16 Industrial Organization and Macroeconomics: Industrial Structure and Structural Change; Industrial Price Indices
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