Aggregate Fluctuations, Network Effects and Covid-19

28 Pages Posted: 17 Mar 2023

See all articles by Girish Bahal

Girish Bahal

University of Western Australia; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Damian Lenzo

University of Western Australia

Multiple version iconThere are 2 versions of this paper

Date Written: September 20, 2022

Abstract

We decompose the macroeconomic impact of Covid-19 in the US using three production network measures. First, we estimate the aggregate indirect effect of sectoral employment shocks, finding these “network spillovers” to account for ≈72% of the decline in real GDP over the second quarter of 2020. Second, we show that downstream propagation explains most of the aggregate effect of the sector-specific disruptions. Specifically, 77% of the GDP decline constitutes the effect of shocks to supplier sectors on downstream customers. Finally, higher-order feedback is mostly inconsequential in explaining the depth of the contraction: only 5% of the aggregate impact is attributed to second-, third- and higher-round effects of the initial shocks.

Keywords: production networks, Hulten’s theorem, disaggregated macroeconomic models, Covid-19

JEL Classification: D24, D5, D57, E23, E24, E32, O41

Suggested Citation

Bahal, Girish and Lenzo, Damian, Aggregate Fluctuations, Network Effects and Covid-19 (September 20, 2022). Available at SSRN: https://ssrn.com/abstract=4233829 or http://dx.doi.org/10.2139/ssrn.4233829

Girish Bahal (Contact Author)

University of Western Australia ( email )

Crawley, Western Australia 6009
Australia
0411203151 (Phone)

HOME PAGE: http://https://sites.google.com/site/girishbahal/home

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

Damian Lenzo

University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia

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