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Faculty of Economics

Production Networks In Macroeconomics

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Title: Production Networks In Macroeconomics

Sponsor: EC FP7 ERC SIRG

Description: A modern economy is an intricately linked web of specialized production units, each relying on the flow of inputs from their suppliers to produce their own output which, in turn, is routed towards other downstream units. Recent work in economics stresses that the structure of this production network is key in determining whether and how microeconomic shocks – affecting only a particular firm or technology – can propagate throughout the economy and shape aggregate outcomes. If this is the case, understanding the structure of this production network can better inform both academics on the origins of aggregate fluctuations and policymakers on how to prepare for and recover from adverse shocks that disrupt these production chains.

This emerging literature on the role of production networks in macroeconomic fluctuations has opened up the possibility of tracing back the origins of business cycles to disaggregated technologies interacting through input-supply relations. However, as we further our understanding of how production chains can affect aggregate outcomes, the need for convincing empirical evidence on whether the mechanisms emphasized by theory are indeed borne out in the data becomes first-order. This is the first aim of the macronets project.

At the same time, once one recognizes that the network structure of input-supply relations is linked to macroeconomic outcomes a more ambitious set of questions emerges. What determines the structure of these production networks? How do they evolve over time? The second aim of the macronets project revolves around these questions.

External website:

Principal investigator

Professor Vasco Carvalho

Published Papers

Carvalho, V. M. From micro to macro via production networks, (2014) Journal of Economic Perspectives

Cambridge Working Papers in Economics

Carvalho, V. M., Nirei, M., Saito, Y. U. and Tahbaz-Salehi, A. Supply Chain Disruptions: Evidence from the Great East Japan Earthquake, (2016) CWPE1670
Carvalho, V. M. and Grassi, B. Large Firm Dynamics and the Business Cycle, (2015) CWPE1556
Carvalho, V. M. and Voigtländer, N. Input Diffusion and the Evolution of Production Networks, (2015) CWPE1550

News and Events

Dr. Vasco Carvalho's Research into "Supply Chain Disruptions" - Published on - Wednesday 17th May 2017
Dr. Vasco Carvalho's Research has been featured in Columbia GSB's Ideas and Insights Article. Columbia Business School discusses how complex supply chains can transform local shocks into national economic malaise based on the paper "Supply Chain Disruptions: Evidence from the Great East Japan Earthquake", by Vasco Carvalho, Makoto Nirei, Yukiko Saito and Alireza Tahbaz-Salehi.

Third European Meeting on Networks - Event Date - Thursday 18th June 2015 - Friday 19th June 2015
The Meeting aims to offer a forum for the presentation and dissemination of frontier research on Networks.

Interviews and Articles

Supply Chain Disruptions: The micro and macro effects of the 2011 Japanese Earthquakes, Faculty of Economics Alumni Newsletter, Issue 10.
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Supply Chain

Macroeconomics Research Group

Christina and David Romer
(Berkeley Economics)
'Fiscal Space and the Aftermath of Financial Crises: How It Matters and Why'
Tuesday 15th October 2019 3:45pm
Meade Room,
Jordi Gali
(Barcelona Graduate School of Economics)
Tuesday 5th November 2019 3:45pm
Keynes Room, Please note different room to usual

Recent Publications

Faraglia, E., Marcet, A., Oikonomou, R. and Scott, A. Government Debt management: the Short and the Long of it Review of Economic Studies, accepted [2018]

Carvalho, V. M. and Grassi, B. Large Firm Dynamics and the Business Cycle American Economic Review [2019]

Selected CWPE


Reforming Fiscal Institutions in Resource-Rich Arab Economies: Policy Proposals, Mohaddes, K., Nugent, J., Selim, H.


Production Networks: A Primer, Carvalho, V. M. and Tahbaz-Salehi, A.


Market Power and Innovation in the Intangible Economy, De Ridder, M.