Analyses of Aggregate Fluctuations of Firm Network Based on the Self-Organized Criticality Model

TL;DR

This paper investigates how demand shocks cause firm network avalanches, revealing power-law size distributions and comparing simulations with real data and policies to understand economic fluctuations.

Contribution

It introduces a self-organized criticality model to analyze aggregate fluctuations across industries, linking avalanche sizes to demand shocks and policy impacts.

Findings

Avalanche sizes follow a power-law distribution.

Industry avalanche sizes are diverse but overlapping.

Simulation results align with observed data and policies.

Abstract

This study examine the difference in the size of avalanches among industries triggered by demand shocks, which can be rephrased by control of the economy or fiscal policy, and by using the production-inventory model and observed data. We obtain the following results. (1) The size of avalanches follows power law. (2) The mean sizes of avalanches for industries are diverse but their standard deviations highly overlap. (3) We compare the simulation with an input-output table and with the actual policies. They are compatible.