I quantify the contribution of sectoral shocks to business cycle fluctuations in aggregate output. I develop a multi-industry general equilibrium model in which each industry employs the material and capital goods produced by other sectors, and then estimate this model using data on U.S. industries sales, output prices, and input choices. Maximum likelihood estimates indicate that industry-specific shocks account for nearly two-thirds of the volatility of aggregate output, substantially larger than previously assessed. Identification of the relative importance of industry-specific shocks comes primarily from data on industries intermediate input purchases, data that earlier estimations of multi-industry models have ignored.
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Input Linkages and the Transmission of Shocks: Firm-Level Evidence from the 2011 Tohoku Earthquake
September 2015
Working Paper Number:
CES-15-28
Using novel firm-level microdata and leveraging a natural experiment, this paper provides causal evidence for the role of trade and multinational firms in the cross-country transmission of shocks. Foreign multinational affiliates in the U.S. exhibit substantial intermediate input linkages with their source country. The scope for these linkages to generate cross-country spillovers in the domestic market depends on the elasticity of substitution with respect to other inputs. Using the 2011 Tohoku earthquake as an exogenous shock, we estimate this elasticity for those firms most reliant on Japanese imported inputs: the U.S. affiliates of Japanese multinationals. These firms suffered large drops in U.S. output in the months following the shock, roughly one-for-one with the drop in imports and consistent with a Leontief relationship between imported and domestic inputs. Structural estimates of the production function for these firms yield disaggregated production elasticities that are similarly low. Our results suggest that global supply chains are sufficiently rigid to play an important role in the cross-country transmission of shocks.
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Materials Prices and Productivity
June 2012
Working Paper Number:
CES-12-11
There is substantial within-industry variation, even within industries that use and produce homogeneous inputs and outputs, in the prices that plants pay for their material inputs. I explore, using plant-level data from the U.S. Census Bureau, the consequences and sources of this variation in materials prices. For a sample of industries with relatively homogeneous products, the standard deviation of plant-level productivities would be 7% lower if all plants faced the same materials prices. Moreover, plant-level materials prices are both persistent across time and predictive of exit. The contribution of net entry to aggregate productivity growth is smaller for productivity measures that strip out di'erences in materials prices. After documenting these patterns, I discuss three potential sources of materials price variation: geography, di'erences in suppliers. marginal costs, and suppliers. price discriminatory behavior. Together, these variables account for 13% of the dispersion of materials prices. Finally, I demonstrate that plants.marginal costs are correlated with the marginal costs of their intermediate input suppliers.
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Small and Large Firms Over the Business Cycle
February 2018
Working Paper Number:
CES-18-09
Drawing on a new, con dential Census Bureau dataset of financial statements of a representative sample of 80000 manufacturing firms from 1977 to 2014, we provide new evidence on the link between size, cyclicality, and financial frictions. First, we only find evidence of lower cyclicality among the very largest firms (the top 1% by size). Second, due to high and rising concentration of sales and investment, the lower sensitivity of the top 1% firms dominates the behavior of aggregate fluctuations. Third, we show that this differential sensitivity does not appear to be driven by financial frictions. The higher sensitivity of the bottom 99% does not disappear after controlling for measures of financial strength, is not statistically significant after
identified monetary policy shocks, and does not appear in debt financing flows. Evidence from 3-digit industries suggests a non-financial explanation: the largest 1% of firms are less sensitive due to a more diversified customer base.
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Automation, Labor Share, and Productivity:
Plant-Level Evidence from U.S. Manufacturing
September 2018
Working Paper Number:
CES-18-39
This paper provides new evidence on the plant-level relationship between automation, labor and capital usage, and productivity. The evidence, based on the U.S. Census Bureau's Survey of Manufacturing Technology, indicates that more automated establishments have lower production labor share and higher capital share, and a smaller fraction of workers in production who receive higher wages. These establishments also have higher labor productivity and experience larger long-term labor share declines. The relationship between automation and relative factor usage is modelled using a CES production function with endogenous technology choice. This deviation from the standard Cobb-Douglas assumption is necessary if the within-industry differences in the capital-labor ratio are determined by relative input price differences. The CES-based total factor productivity estimates are significantly different from the ones derived under Cobb-Douglas production and positively related to automation. The results, taken together with earlier findings of the productivity literature, suggest that the adoption of automation may be one mechanism associated with the rise of superstar firms.
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Firm-to-Firm Relationships and Price Rigidity Theory and Evidence
January 2017
Working Paper Number:
CES-17-33
Economists have long suspected that firm-to-firm relationships might increase price rigidity due to the use of explicit or implicit fixed-price contracts. Using transaction-level import data from the U.S. Census, I study the responsiveness of prices to exchange rate changes and show that prices are in fact substantially more responsive to these cost shocks in older versus newly formed relationships. Based on additional stylized facts about a relationship's life cycle and interviews I conducted with purchasing managers, I develop a model in which a buyer-seller pair subject to persistent, stochastic shocks to production costs shares profit risk under limited commitment. Once structurally estimated, the model replicates the empirical correlation between relationship age and the responsiveness of prices to shocks. My results suggest that changes to the average length of relationships in the economy - e.g., in a recession, when the share of young relationships declines - can influence price flexibility and hence the effectiveness of monetary policy.
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Industry Linkages from Joint Production
January 2023
Working Paper Number:
CES-23-02
I develop a theory of joint production to quantify aggregate economies of scope. In US manufacturing data, increased export demand in one industry raises a firm's sales in its other industries that share knowledge inputs like R&D and software. I estimate that knowledge inputs contribute to economies of scope through their scalability and partial non-rivalry within the firm. On average a 10 percent increase in output in one industry lowers prices in other industries by 0.4 percent. Such economies of scope manifest disproportionately among knowledge proximate industries and imply large spillover impacts of recent US-China trade policy on producer prices.
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Housing Booms and the U.S. Productivity Puzzle
January 2020
Working Paper Number:
CES-20-04
The United States has been experiencing a slowdown in productivity growth for more than a decade. I exploit geographic variation across U.S. Metropolitan Statistical Areas (MSAs) to investigate the link between the 2006-2012 decline in house prices (the housing bust) and the productivity slowdown. Instrumental variable estimates support a causal relationship between the housing bust and the productivity slowdown. The results imply that one standard deviation decline in house prices translates into an increment of the productivity gap -- i.e. how much an MSA would have to grow to catch up with the trend -- by 6.9p.p., where the average gap is 14.51%. Using a newly-constructed capital expenditures measure at the MSA level, I find that the long investment slump that came out of the Great Recession explains an important part of this effect. Next, I document that the housing bust led to the investment slump and, ultimately, the productivity slowdown, mostly through the collapse in consumption expenditures that followed the bust. Lastly, I construct a quantitative general equilibrium model that rationalizes these empirical findings, and find that the housing bust is behind roughly 50 percent of the productivity slowdown.
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How Collateral Affects Small Business Lending: The Role of Lender Specialization
August 2021
Working Paper Number:
CES-21-22
I study the role of collateral on small business credit access in the aftermath of the 2008 financial crisis. I construct a novel, loan-level dataset covering all collateralized small business lending in Texas from 2002-2016 and link it to the U.S. Census of Establishments. Using textual analysis, I show that post-2008, lenders reduced credit supply to borrowers outside of the lender's collateral specialization. This result holds when comparing lending to the same borrower from different lenders, and when comparing lending by the same lender to different borrowers. A one standard deviation higher specialization in collateral increases lending to the same firm by 3.7%. Abstracting from general equilibrium effects, if firms switched to lenders with the highest specialization in their collateral, aggregate lending would increase by 14.8%. Furthermore, firms borrowing from lenders with greater specialization in the borrower's collateral see a larger growth in employment after 2008. Finally, I show that firms with collateral more frequently accepted by lenders in the economy find it easier to switch lenders. In sum, my paper shows that borrowing from specialized lenders increases access to credit and employment during a financial crisis.
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Multiregional Firms and Region Switching in the US Manufacturing Sector
January 2015
Working Paper Number:
CES-15-22
This paper uses data on US manufacturing firms to study a new extensive margin, the reallocation of resources that takes place within surviving firms as they open and close establishments in different regions. To motivate the empirical analysis, I extend existing models of industry dynamics to include production-location decisions within firms. The empirical results provide support for the mechanisms emphasized by the theoretical model. In the data, only about 3 percent of firms make the same product in more than one region, but these multiregional firms are more productive on average
compared to single-region firms, and they account for about two-thirds of output. The results also show that "region-switching" is pervasive among multiregional firms, is correlated with changes in firm characteristics, and leads to a more efficient allocation of resources within firms.
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Firm Dynamics, Persistent Effects of Entry Conditions, and Business Cycles
January 2017
Working Paper Number:
CES-17-29
This paper examines how the state of the economy when businesses begin operations affects
their size and performance over the lifecycle. Using micro-level data that covers the entire universe of businesses operating in the U.S. since the late 1970s, I provide new evidence that businesses born in downturns start on a smaller scale and remain smaller over their entire lifecycle. In fact, I find no evidence that these differences attenuate even long after entry. Using new data on the productivity and composition of startup businesses, I show that this persistence is related to selection at entry and demand-side channels.
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