Accounting for Propagation

Abstract

We propose a correction that filters out the effects of propagation through the global value chain to identify the supply shocks underlying observed fluctuations. The correction, derived in a rich multi-country multi-sector model, is straightforward and utilizes readily available input-output data. It reveals a greater impact of idiosyncratic sector shocks and a lesser impact of global shocks than suggested by unfiltered data. Its closed-economy version significantly overestimates the importance of country shocks. Unlike unfiltered data, the identified idiosyncratic supply shocks align closely with what would be expected around such significant events as natural disasters, global crises, or the COVID-19 pandemic.

Biography

Laurent Pauwels researches statistical modeling, forecasting, econometrics, financial risk, global value chains, and international macroeconomics. Presently, his work focuses on evaluating the impact of risks, interdependence, exposure, and shock propagation in economic networks and global value chains. Additionally, he is involved in developing forecasting methods applied to financial data. His academic work is published in journals such as Journal of International Economics, Economic Policy, the Journal of International Money and Finance, and the International Journal of Forecasting. His research has been cited in media outlets, including The Economist, Bloomberg, and El País among others. Before joining Stern in Abu Dhabi, he held positions at NYU Abu Dhabi, The University of Sydney, the Hong Kong Monetary Authority, and the United Nations Economic Commission for Europe. He has also consulted for policy institutions, including the European Central Bank, the National Bank of Belgium, and the UN University Institute on Comparative Regional Integration Studies.