Title: Intersectoral Linkages: Good Shocks, Bad Outcomes?
Abstract: We analyze multisector models with endogenous product variety and derive general results on the magnitude of welfare changes due to sector-specific price shocks. Intersectoral linkages magnify or dampen these shocks, depending on complementarity or substitutability in consumers' preferences. Under the widely used combination of Cobb-Douglas-CES utilities and monopolistic competition, intersectoral linkages disappear. This does not hold with more general preferences or market structures, where sector-specific price shocks that are a priori welfare improving can turn out to be welfare worsening economy-wide. We illustrate this result with several examples, in particular where one sector is 'granular' and the other is monopolistically competitive.
Publication Year: 2019
Publication Date: 2019-08-01
Language: en
Type: article
Access and Citation
AI Researcher Chatbot
Get quick answers to your questions about the article from our AI researcher chatbot