Skewed Fluctuations and Propagation Through Production Networks

Skewness is a prevalent feature of macroeconomic time series and may arise exogenously because shocks are asymmetrically distributed, or endogenously, as shocks propagate through production networks. Previous theoretical work often studies these two possibilities in isolation. We nest all possible sources of skewness in a model where output has a network, a common, and an idiosyncratic component. In this model, skewness can arise not only from the three components, but also from coskewness due to the higher order covariation between components. An analysis of output growth in 43 U.S. sectors shows that coskewness is a key source of asymmetry in the data and constitutes a connectivity channel not previously explored. To help interpret our results, we construct and estimate a micro-founded multi-sector general equilibrium model and show that it can generate skewness and coskewness consistent with the data.