Tail Risk in Production Networks / Ian Dew-Becker.

Format:

Book

Author/Creator:

Dew-Becker, Ian.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w30479.

NBER working paper series no. w30479

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2022.

Summary:

This paper describes the response of the economy to large shocks in a nonlinear production network. While arbitrary combinations of shocks can be studied, it focuses on a sector's tail centrality, which quantifies the effect of a large negative shock to the sector - a measure of the systemic risk of each sector. Tail centrality is theoretically and empirically very different from local centrality measures such as sales share - in a benchmark case, it is measured as a sector's average downstream closeness to final production. The paper then uses the results to analyze the determinants of total tail risk in the economy. Increases in interconnectedness in the presence of complementarity can simultaneously reduce the sensitivity of the economy to small shocks while increasing the sensitivity to large shocks. Tail risk is strongest in economies that display conditional granularity, where some sectors become highly influential following negative shocks.

Notes:

Print version record

September 2022.