This paper develops a framework for studying the macroeconomic costs of resource misallocation. The framework enables the assessment of the conditions under which the existing estimates in the misallocation literature, which are largely based on a value-added production structure and ignore...

Monetary policy shocks have a large impact on stock returns in narrow windows around press releases by the Federal Reserve. We use spatial autoregressions to decompose the overall effect of monetary policy shocks into a direct effect and an indirect (network) effect. We attribute 50%-85% of the...

The adoption and diffusion of inputs in the production network is at the heart of technological progress. What determines which inputs are initially considered and eventually adopted by innovators? We examine the evolution of input linkages from a network perspective, starting from a stylized...

This paper presents a tractable model of endogenous production networks with fixed costs associated with the formation of links between firms. The model consists of a finite number of firm types producing differentiated products. Each firm is characterized by firm-specific parameters describing...

We derive closed-form solutions and sufficient statistics for inflation and GDP dynamics in multi-sector New Keynesian economies with arbitrary input-output linkages. Analytically, we decompose how production linkages (1) amplify the persistence of inflation and GDP responses to monetary and...

We develop a tractable model of endogenous production networks. Each one of a number of products can be produced by combining labor and an endogenous subset of the other products as inputs. Different combinations of inputs generate (prespecified) levels of productivity. Markets are "contestable"...

One of the most important developments in the growth literature of the last decade is the enhanced appreciation of the role that the misallocation of resources plays in helping us understand income differences across countries. Misallocation at the micro level typically reduces total factor...

We develop a model of the world economy as input-output relationships subject to distortions. We then propose a methodology to solve the identification problem, common to the literature on misallocation in input-output relationships, of separating sectoral TFPs from the sectoral distortions....

In recent decades, advances in information and communication technology and falling trade barriers have led firms to retain within their boundaries and in their domestic economies only a subset of their production stages. A key decision facing firms worldwide is the extent of control to exert...

The real effective exchange rate (REER) is one of the most cited statistical constructs in international macroeconomics. With the rising importance of offshoring and outsourcing, the standard measures are increasingly flawed. In addition, because different sectors within a country may...