Bank of Lithuania

Direct and network effects of idiosyncratic TFP shocks


This study investigates the direct and intersectoral network effects of idiosyncratic TFP shocks on sectors’ growth in the context of US manufacturing industries. To deal with the potential endogeneity of TFP, we propose a novel set of instruments for contemporaneous regressors. These instruments are technology shocks identified via sign restriction from sectoral SVAR models. Using US input-output tables and industry-level data, we quantify direct and network-based effects of the shocks. Our results show that idiosyncratic technology shocks propagate mostly downstream the network. In addition, we capture strong contemporaneous direct effects of the shocks.

JEL Codes: C36, C67, D24, E32.

The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.

Input-Output Linkages, Network, Instrumental Variables, Idiosyncratic TFP Shocks, Sectoral Growth, US Manufacturing Industry