Micro Structure and Macro Outcomes

MICRO2MACRO proposes a research agenda where macroeconomic outcomes emerge as the equilibrium aggregation of decisions by interlinked micro-units of production operating in narrow, possibly frictional, markets and subject to localized shocks. Under this broad agenda, the project focuses on three different themes.

The first theme of MICRO2MACRO develops novel theory on market power in production networks and explores how this perspective may inform policy makers and academics. It asks the following questions: (i) Where does market power lie?

Can models of production networks help identify market power bottlenecks in supply chain data? (ii) How is competition policy affected by production networks? (iii) Can this micro-to-macro approach inform unresolved debates on the cyclicality of markups?Second, while the literature has mostly focused on how production networks can help in understanding business cycles, the implications for innovation and growth are largely unexplored.

The second theme of MICRO2MACRO puts forward a view of the networked nature of innovation and explores its implications for aggregate growth.

It asks: (i) Do innovation decisions cascade throughout the supply chain in response to final demand market size effects? (ii) How do firms explore the knowledge space?

Do firms shift between exploiting in depth a given technology and exploring in a new technological domain? (iii) What are the asset pricing implications of unbalanced growth at a micro level?The third theme of MICRO2MACRO explores how naturally occurring transaction-level data can help surmount empirical bottlenecks in the existent literature.

We ask: (i) Whether transaction records can be tapped into to provide a substitute for classical national accounts objects such as disaggregated GDP measures and detailed input-output tables (ii) Whether this data can be deployed to understand the propagation of highly localized shocks through final demand linkages.