Aggregate Fluctuations, Network Effects and Covid-19
28 Pages Posted: 17 Mar 2023
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Aggregate Fluctuations, Network Effects and Covid-19
Aggregate Fluctuations, Network Effects, and Covid-19
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
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