Work

Aggregate Fluctuations from Independent Sectoral Shocks: Self-Organized Criticality in a Model of Production and Inventory Dynamics

Year: 1992

Type: report

Abstract: This paper illustrates how fluctuations in aggregate economic activity can result from many small, independent shocks to individual sectors. The effects of the small independent shocks fail to cancel in the aggregate due to the presence of two non-standard assumptions: local interaction between productive units (linked by supply relationships), and non-convex technology. We also argue that neither feature on its own would suffice. In the case of a simple model, we explicitly calculate the distribution of aggregate activity in the limit of an infinite number of independently disturbed sectors.

Source: National Bureau of Economic Research

DOI: 10.3386/w4241

Authors: Peter Bak, Kan Chen, Jose Scheinkman, Michael Woodford

Institutions: National Bureau of Economic Research, Princeton University, Columbia University

Language: English

Topic: Complex Systems and Time Series Analysis

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2051116397

Cites: 24

Cited by: 62

Related to: 10