Premium
Input–Output Linkages and Sectoral Volatility
Author(s) -
Olabisi Michael
Publication year - 2020
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/ecca.12327
Subject(s) - volatility (finance) , openness to experience , economics , volatility swap , monetary economics , volatility risk premium , volatility smile , manufacturing sector , econometrics , international economics , implied volatility , psychology , social psychology
Why are some sectors more volatile than others? This paper uncovers evidence of an empirical regularity in the US economy: upstream sectors that are far removed from final consumers have higher levels of output volatility. The relationship between volatility and upstreamness is not driven by sector size, sector concentration, trade openness or the level of aggregation at which sectors are defined. Rather, the paper shows a stronger link between upstreamness and nominal output volatility, than with indexes of real output volatility. Aggregate exports at the national level also reflect the empirical regularity of higher volatility with upstreamness: Export volatility is higher in economies with trade portfolios dominated by upstream sectors. On average, reducing the upstreamness of exports by 1 also reduces aggregate export volatility by about 10%. The pattern of higher volatility for upstream sectors is explained with a model of demand shock transmission between sectors.