Deriving Aggregate Network Effects in Macroeconomic Models

The paper analyzes the relevance of links among firms in explaining the auto-correlation properties of the aggregate rate of growth of firms. This approach relies on the interaction between idiosyncratic shocks of firms and their network structure. The study uses the adjacency matrix representation of networks showing the theoretical relation between the individual shocks of firms and the aggregate shock. This work contains a brief discussion about the implementation of this new framework in Dynare when solving DSGE models. The paper shows also how to generalize the framework to the case in which firms are different in some important characteristic and we have to compute a weighted mean. Finally, it is analyzed the aggregate result of situations in which firms are connected with banks by credit relationships