  Based on a multisector general equilibrium framework, we show that the
sectoral elasticity of substitution plays the key role in the evolution of
asymmetric tails of macroeconomic fluctuations and the establishment of
robustness against productivity shocks. Non-unitary elasticity of substitution
renders a nonlinear Domar aggregation, where normal sectoral productivity
shocks translate into non-normal aggregated shocks with variable expected
output growth. We empirically estimate 100 sectoral elasticities of
substitution, using the time-series linked input-output tables for Japan, and
find that the production economy is elastic overall, relative to Cobb-Douglas
with unitary elasticity. Along with the previous assessment of an inelastic
production economy for the US, the contrasting tail asymmetry of the
distribution of aggregated shocks between the US and Japan is explained.
Moreover, robustness of an economy is assessed by the expected output growth,
the level of which is led by the sectoral elasticities of substitution, under
zero mean productivity shocks.
