Research

Short-Run vs. Long-Run Centrality: Production Networks and the Term Structure of Equity

• In this paper, I explore the ability of the term structure of equity to inform macroeconomic models of production. I argue that the term structure of equity contains distinct but complementary information to the term structure of interest rates. In a simple macroeconomic model of production featuring intersectoral trade in intermediate goods and investment goods, I show that because shocks to intermediate goods hubs play out over shorter horizons than shocks to investment hubs, the slope of the term structure depends crucially on the shape of the production networks and the covariance structure of sectoral productivity growth. I introduce the concept of short-run centrality and long-run centrality of industries to characterize this relationship, leading to several testable restrictions between output growth, production networks, and asset pricing data. In particular, if the model is to reproduce the stylized fact that the term structure of equity is downward sloping, either shocks to investment hubs and intermediate goods hubs must be negatively correlated or total factor productivity must feature a mean-reverting component.

Works in Progress

Asset Pricing and the Importance of Sectoral Shocks

• In this paper, I propose using risk prices inferred from asset returns data to measure the relative importance of sectoral TFP shocks. Risk prices measure the marginal compensation that a representative investor requires in exchange for a unit increase in exposure to a source of macroeconomic risk. I utilize the shock-price elasticities developed in Borovička and Hansen (2014) to characterize these risk prices in a set of multisector models. I show that in a simple two-period model production network model, the measure of relative importance a sector's shocks is the same whether we use Domar weights, the network-based influence vector measure of Acemoglu et al (2012), or the shock's associated risk price. In contrast, I show that these measures can differ in multi-period models. I analyze several such models. Using the TFP shocks identified by each model, I propose measuring these risk prices empirically by projecting the sectoral shock onto a panel of asset returns to construct factor mimicking portfolios and measuring the associated returns and factor premia.