Thomas Winberry is an Associate Professor of Economics at the University of Chicago Booth School of Business, Chicago, Illinois. He is interested in what micro data can teach us about aggregate issues. His recent work focuses on how firm-level investment behavior shapes the dynamics of aggregate investment over the business cycle, and the response of aggregate investment to fiscal and monetary policy. A secondary strand of Tom’s research is in computational economics, focusing on how to efficiently compute macro models that feature realistic inequality across firms and workers. He will present the paper Sectoral Comovement and the Changing U.S. Business Cycle.
Sectoral Comovement and the Changing U.S. Business Cycle
Abstract: We study two changes in aggregate business cycles since the early 1980s: the volatility of inputs (employment and capital investment) has risen relative to the volatility of output, and labor productivity has become acyclical. Empirically, we show that these changes have not occurred within sectors but are instead accounted for by changes in comovement across sectors; output has become less correlated across sectors but inputs have not. We build a multisector business cycle model with input-output linkages in investment goods that can match these facts, driven by the decline in aggregate volatility induced by the Great Moderation. The investment network is necessary to these results because it propagates sectoral shocks throughout the economy more strongly for inputs than output. In addition, the model implies that sluggish investment growth – for example, following a financial shock or capital overhang – can cause sluggish employment growth due to the structure of the investment network.