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Economic Quarterly

Second Quarter 2011

Sectoral Disturbances and Aggregate Economic Activity

Nadezhda Malysheva and Pierre-Daniel G. Sarte

In this article, we provide an overview of the key mechanisms by which sectoral disturbances affect aggregate economic activity. We describe how the distribution of sectoral shares influences each sector's contribution to the variation in aggregate output. We also illustrate different aspects of the effects of input-output linkages across sectors on the amplification and propagation of idiosyncratic sectoral shocks. In particular, we review and summarize key conditions, first articulated in Dupor (1999), under which movements in aggregate output are invariant to sectoral disturbances, even in the presence of intersectoral linkages in production. Finally, using estimates of a two-digit input use table constructed by the Bureau of Economic Analysis, we provide various calculations of the contribution of different sectors to variations in aggregate output.

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