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Production Network Structure, Macroeconomic Fluctuation and Supply-side Reform
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TitleProduction Network Structure, Macroeconomic Fluctuation and Supply-side Reform  
AuthorCao Cangjian  
OrganizationSchool of Economics and Management, Tsinghua University 
Key WordsMacroeconomic Fluctuation; Production Network; Input-Output; Centrality; Supply-side Reform 
AbstractMost studies on macroeconomic fluctuations have ignored the influence of the structural characteristics of economic system, in which many heterogeneous sectors are interconnected with each other. In this study we explore how macroeconomic fluctuation is driven by production network structure and idiosyncratic shocks on sectors. We find that the ex post aggregate fluctuation caused by idiosyncratic shock is positively correlated with the Bonacich centrality of the shock-hitted sector in the production network, while the ex ante expected aggregate fluctuation is positively correlated with the variance of all sectors’ Bonacich centrality, which measures the balance and symmetry of the entire production network. Based on the theoretic and empirical analysis, we come up with some policy implications on China’s supply-side reform and industrial policy design. 
Serial NumberWP1397 
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