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Abstract

The effect of a negative sectoral shock on GDP depends on how important the shocked sector is as a direct and indirect supplier and how easily sectors can substitute inputs. Past estimates of the parameters that determine these qualities in the US have been restrictive: they have not been allowed to vary across industries or across time. This paper uses a novel empirical strategy to produce new estimates of these parameters without these restrictions, by exploiting variation in input expenditure shares within industries rather than across industries. The resulting estimates exhibit significant sectoral and temporal heterogeneity. In a calibrated GE model of multi-sector production, this heterogeneity (1) raises(lowers) the GDP effect of negative shocks to sectors whose customers are less(more) able to substitute inputs (e.g. the GDP effect of a "Chemical products" shock rises by 15%), and (2) raises(lowers) the GDP effect of negative shocks to sectors as they become more[less] central input suppliers (e.g. between 1997 and 2023 the GDP effect of a shock to the "Data processing, internet publishing, and other information services" sector nearly tripled due to changes in its importance as an input supplier).