Energy price shocks play a disproportionate role in driving aggregate fluctuations because energy sectors function as hubs in production networks—supplying key inputs to many other central sectors. This hub status allows them to propagate shocks far beyond what their GDP share would suggest. This study quantifies the impact of energy import price shocks on aggregate output in 21 small open European economies, using international sector-level input–output data. I extend the production network framework of Acemoglu, et al. (2012) to a small open economy setting and show that the sensitivity of output to such shocks depends on four structural drivers: (i) the network centrality of primary energy products, (ii) the substitutability between domestic and imported energy, (iii) the pre-shock import–domestic price differential, and (iv) the degree of home bias in energy sourcing. Estimated GDP elasticities with respect to energy import prices range from –0.037 to –0.006 across countries, with differences in network centrality accounting for most of the cross-country variation.
Networks and the Macroeconomy: A Methodological Exploration (with Erik Dietzenbacher)
A working paper version will be out soon!
Firm-level production networks and carbon pricing (with Inge van den Bijgaart, Stan Olijslagers, Vincent Schippers, and Arjan Trinks)