The interfirm buyer-seller network is important from both macroeconomic and microeconomic perspectives. From a macroeconomic perspective, this network represents a form of interconnectedness that allows firm-level idiosyncratic shocksto be propagated to other firms. This propagation mechanism interferes with the averaging out process of shocks, having a possible impact on aggregate fluctuation. From a microeconomic perspective, the interfirm buyer-seller network is a result of a firm's strategic link renewal processes. There has been substantial research that models strategic link formation processes, but the economy-wide consequences of such strategic behaviors are not clear. We address these two questions using a unique dataset for the Japanese interfirm buyer-seller network. We take a structural equation modeling, and show that a large proportion of fluctuation in the average log growth rate of firms can be explained by the network and that link renewal by firms decreases the standard deviation of the log growth rate.\\%DIF > of the aggregate fluctuations can be explained by the network effect.
A firm's buyer--seller relationships can be characterized as a longitudinal network in which the connectivity patterns evolve as each firm faces productivity shocks. Despite its importance in characterizing the production network of an economy, little is known about how the network revises its linkage structure in the face of global and individual exogenous shocks. Using a unique data set covering 10 years of interfirm buyer--seller networks and structural equation modeling, we show that the evolution of the interfirm buyer--seller network is a result of a firm's myopic decisions to avoid other firms' negative shocks and share their positive shocks. We show that the current network is often the best network configuration, which improves both the propagation of positive shocks and the avoidance of negative shocks compared with previous networks. Furthermore, we show that for positive shocks, the future network is often better than the current network in the sense that it propagates positive shocks better than the current network. This is explained by the asymmetry in cost between severing a link and link formation. We also investigate the role of the network in aggregate fluctuations and show that at least 37\\%DIF > of the aggregate fluctuations can be explained by the network effect.
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The interfirm buyer-seller network is important from both macroeconomic and microeconomic perspectives. From a macroeconomic perspective, this network represents a form of interconnectedness that allows firm-level idiosyncratic shocksto be propagated to other firms. This propagation mechanism interferes with the averaging out process of shocks, having a possible impact on aggregate fluctuation. From a microeconomic perspective, the interfirm buyer-seller
A firm's buyer--seller relationships can be characterized as a longitudinal network in which the connectivity patterns evolve as each firm faces productivity shocks. Despite its importance in characterizing the production network of an economy, little is known about how the network revises its linkage structure in the face of global and individual exogenous shocks. Using a unique data set covering 10 years of interfirm buyer--seller networks and structural equation modeling, we show that the evolution of the interfirm buyer--seller
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strategic link renewal processes. There has been substantial research that models strategic link formation processes, but the economy-wide consequences of such strategic behaviors are not clear. We address these two questions using a unique dataset for the Japanese interfirm buyer-seller network. We take a structural equation modeling, and show that a large proportion of fluctuation in the average log growth rate of firms can be
myopic decisions to avoid other firms' negative shocks and share their positive shocks. We show that the current network is often the best network configuration, which improves both the propagation of positive shocks and the avoidance of negative shocks compared with previous networks. Furthermore, we show that for positive shocks, the future network is often better than the current network in the sense that it propagates positive shocks better than the current network. This is
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network and that link renewal by firms decreases the standard deviation of the log growth rate.
asymmetry in cost between severing a link and link formation. We also investigate the role of the network in aggregate fluctuations and show that at least 37