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Key features ignored by first\u2010order approximations that play a crucial role are: structural microeconomic elasticities of substitution, network linkages, structural microeconomic returns to scale, and the extent of factor reallocation. In a business\u2010cycle calibration with sectoral shocks, nonlinearities magnify negative shocks and attenuate positive shocks, resulting in an aggregate output distribution that is asymmetric (negative skewness), fat\u2010tailed (excess kurtosis), and has a negative mean, even when shocks are symmetric and thin\u2010tailed. Average output losses due to short\u2010run sectoral shocks are an order of magnitude larger than the welfare cost of business cycles calculated by Lucas (1987). Nonlinearities can also cause shocks to critical sectors to have disproportionate macroeconomic effects, almost tripling the estimated impact of the 1970s oil shocks on world aggregate output. Finally, in a long\u2010run growth context, nonlinearities, which underpin Baumol's cost disease via the increase over time in the sales shares of low\u2010growth bottleneck sectors, account for a 20 percentage point reduction in aggregate TFP growth over the period 1948\u20132014 in the United States.<\/jats:p>","DOI":"10.3982\/ecta15202","type":"journal-article","created":{"date-parts":[[2019,7,24]],"date-time":"2019-07-24T01:04:27Z","timestamp":1563930267000},"page":"1155-1203","source":"Crossref","is-referenced-by-count":461,"title":["The Macroeconomic Impact of Microeconomic Shocks: Beyond Hulten's Theorem"],"prefix":"10.3982","volume":"87","author":[{"given":"David Rezza","family":"Baqaee","sequence":"first","affiliation":[{"name":"Department of Economics, UCLA"}],"role":[{"vocabulary":"crossref","role":"author"}]},{"given":"Emmanuel","family":"Farhi","sequence":"additional","affiliation":[{"name":"Department of Economics, Harvard University"}],"role":[{"vocabulary":"crossref","role":"author"}]}],"member":"2359","published-online":{"date-parts":[[2019]]},"reference":[{"key":"ecta200043-bib-0001","doi-asserted-by":"crossref","unstructured":"Acemoglu, D., U. 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