Seminar Larry Blume: Complex Production Networks and the Price Turnpike

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.