What Do Production Networks Add to an Oil Shock?

Abstract

We study how oil price shocks propagate across sectors in a small open economy. Using Chilean data, we document the response of sectoral prices to oil price shocks and relate it to sectors’ direct and indirect exposure to oil through input–output linkages. We then build and estimate a multi-sector New Keynesian model with the Chilean input–output structure, in which households also buy fuel directly, to ask what production networks add to the transmission of oil shocks to core and headline inflation and to activity, and how much of the amplification comes from intermediate input intensity rather than from the network’s topology."

Agustin Diaz Casanueva

Economist

I study how households make economic decisions about consumption, fertility, and labor supply in response to shocks and policy changes.