This paper introduces the concept of diffusion of shocks in a macroeconomic network consisting of inter-sectoral production linkages. I show that if sectors have different reaction horizons it would lead to diffusion of shocks through the network over time which prevents the inter-sectoral...

We prove that the diffusion limit of Real-Time GARCH (RT-GARCH) exists if we introduce an auxiliary process to replace the squared return in the volatility process. The volatility of the diffusion follows an Ornstein-Uhlenbeck-type process which fails to be positive with probability one unless...