Research

(Abstract). Modern economies are organized as dense production networks, yet the transmission of shocks is conventionally understood through observed Input-Output linkages and vertical cascade effects. This paper argues that this view is incomplete. Propagation also operates through horizontal complementarities: the extent to which sectors share upstream suppliers or downstream buyers. These interdependencies shape a latent network of connections, linking also otherwise unconnected sectors, and generate simultaneous responses to idiosyncratic shocks through structural demand and supply similarities embedded in the Input-Output system. Aggregate volatility then results from  widespread correlations that prevent shocks from averaging out. This diffusion channel acts as a complement to vertical propagation, offering a unified view of comovement rooted in the horizontal geometry of common interactions rather than network trade intensities. Using Input-Output data, I show that sectoral responses vary systematically with horizontal economic distances, forging novel implications for the transmission of sectoral and aggregate shocks.

JEL: C67, D57, E32, J21

KEYWORDS: production networks, Input-Output economy, horizontal transmission, network distance, sectoral comovement, aggregate fluctuations

(Abstract). This paper examines the determinants of U.S. wage inequality between industries. It distinguishes two channels of Skill-Biased Technological Change: a quantity effect, mirroring variations in the distribution of capital and labour inputs, and a structural effect, reflecting differences in substitution elasticities across factors of production. Counterfactual exercises show that evolving technological heterogeneity in substitution patterns dominates wage dispersion. A quantitative decomposition reveals that structural forces, mostly reflecting substitutability of routine with non-routine labour, account for 94% of observed wage variance, exacerbated by stronger sorting and segregation effects. Upon neutralising structural differences, the quantity channel reckons merely 6-15%. Indeed, structural heterogeneity, rather than mere changes in factor quantities, is the dominant force behind U.S. wage inequality.

JEL: E24, J31, J82, L16

KEYWORDS: wage inequality, technological change, labour force composition, elasticity of substitution

(Abstract). Production networks shape aggregate supply not only through whom firms buy from, but also through whom they sell to. Standard network models emphasize how Input-Output linkages propagate costs across firms. We show that the destination of sectoral output makes the role of the network a general-equilibrium outcome. We introduce final-demand proximity: the extent to which a sector's output reaches final consumers directly or indirectly through other sectors. Because firms sell both inside the network, to other firms, and outside it, to final demand, price changes reallocate demand across the two margins. This makes marginal revenues and marginal costs jointly network-dependent and makes the macroeconomic role of a fixed production network endogenous. We first show the mechanism in a simple model and then formalize it in a multi-sector model in which final-demand proximity shapes the slope of sectoral supply curves, and therefore aggregate supply. We then use inflation dynamics to test it. Exploiting country-sector variation within the European Monetary Union, we find that supply-curve slopes vary systematically with both network participation and final-demand proximity. Participation has a monotonic effect. Final-demand proximity has a non-monotonic effect: inflation is most sensitive to activity for sectors that are neither purely final-demand oriented nor purely intermediate-input suppliers.

JEL: E31, E32, E52, F41

KEYWORDS: inflation dynamics, production networks, Phillips Curve, Global Value Chains, real rigidities, price stickiness, strategic complementarities