Analyses of Aggregate Fluctuations of Firm Networks Based on the Self-Organized Criticality Model and Control Theory
26 Pages Posted: 30 Nov 2015 Last revised: 31 Mar 2016
Date Written: November 28, 2015
This study examines 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. In addition, we investigate how differently demand shocks affect each firm by using control theory that utilizes network topology. 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 and find them to be compatible. (4) The expectations about becoming involved in avalanches are diverse and depend on the industries. (5) It is difficult for service industries and small firms to be affected by the control. On the other hand, mining, manufacturing, and wholesale industries are strongly affected by the control. (6) If we clip a network in descending order of capital size, we do not lose the control effect.
Keywords: Aggregate Fluctuation, Demand, Network, Firm, Production, Inventory, Control theory
JEL Classification: D22; H32; E32
Suggested Citation: Suggested Citation