Essays in Macroeconomics: The International and Inter-sectoral Propagation of Aggregate Economic Shocks

This thesis is composed of three chapters, focusing on the international and the intersectoral propagation of economic shocks. The first two chapters are devoted to the exploration of the effects of fiscal policy. My third chapter looks at the sectoral effects of oil supply shocks.

The first chapter studies the international spillovers of the US government spending shocks. The analysis focuses on the differences between anticipated ("news") and unanticipated ("surprise") government spending shocks. To identify government spending news, I use forecasters survey data. Spillovers are estimated in a multi-country model. Results show that anticipated government spending changes have profoundly different effects than unanticipated ones. Anticipated fiscal changes in the US have a positive demand effect domestically and increase the demand for exports for other countries. The unanticipated shock has a negative effect on domestic demand and therefore, negative spillovers for the rest of the countries. I find that the shock is mainly transmitted through international trade.

The second chapter studies the effects of a government spending shock in a production network of 16 UK sectors. I estimate a GVAR model with a sectoral dimension, where sectors can be directly affected by government spending but also indirectly, through public spending in the rest of the industries. The model creates a direct link between the aggregate and the sectoral output responses. I exploit this link to calculate sectoral-level government spending multipliers. I attempt to explain the differences across sectoral multipliers. Sectoral multiplier differentials can be explained by the relative position of each sector in the production network. Multipliers are higher for sectors which serve as important suppliers for other sectors. Other characteristics that account for differences across the multipliers are of sectoral exports and sectoral price rigidity. Particularly, multipliers are larger for sectors that are important exporters and those which prices are more rigid. Finally, I find that Input-Output linkages account for a sizable fraction of the overall fiscal effect and can amplify the aggregate fiscal multiplier by around 30\%.

The third chapter estimates the sectoral effects of oil supply shocks for 16 UK sectors' production, employment, TFP and prices. I estimate a multi-sector VAR model where sectors can be directly affected by the oil shock, as well as indirectly through input-output linkages. I identify the oil supply news shock using a high-frequency instrument and a proxy-SGVAR methodology. The main results are the following. First, there is significant heterogeneity on how sectors experience the effects of the oil shock, as the sectors using oil intensively experience a negative supply shock while other sectors face lower demand. Overall, the negative supply and negative demand shocks dominates the economy. However in the short run, a rise in exports of the Mining and the Manufacturing sector produces some positive effects for the economy. At later horizons though, the negative supply and demand shocks dominate and output declines in all sectors. Input-Output linkages magnify the negative effects of the oil shock.