  I study the role of industries' position in supply chains in shaping the
transmission of final demand shocks. First, I use a shift-share design based on
destination-specific final demand shocks and destination shares to show that
shocks amplify upstream. Quantitatively, upstream industries respond to final
demand shocks up to three times as much as final goods producers. To organize
the reduced form results, I develop a tractable production network model with
inventories and study how the properties of the network and the cyclicality of
inventories interact to determine whether final demand shocks amplify or
dissipate upstream. I test the mechanism by directly estimating the
model-implied relationship between output growth and demand shocks, mediated by
network position and inventories. I find evidence of the role of inventories in
explaining heterogeneous output elasticities. Finally, I use the model to
quantitatively study how inventories and network properties shape the
volatility of the economy.
