Complex Production Networks and the Price Turnpike
Seminar by Larry Blume, Cornell University Department of Economics
Recent history has focused our attention on the consequences of complex production networks: the supply chain problem. Here we investigate the short- and long-run consequences of a single shock in constant-returns-to-scale production technologies. All such competitive models have a price turnpike, a single ray of current-value prices to which equilibrium prices will converge even though consumption paths may be much less well-behaved. We bound worst-case rates of convergence to the ray, relate the bounds to properties of the production network topology, and demonstrate that the short-run behavior of competitive price paths can be quite wild far from the long-run steady state.