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Aggregate Fluctuations, Network Effects and Covid-19

Author

Listed:
  • Girish Bahal
  • Damian Lenzo

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.

Suggested Citation

  • Girish Bahal & Damian Lenzo, 2022. "Aggregate Fluctuations, Network Effects and Covid-19," CAMA Working Papers 2022-59, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2022-59
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2022-10/59_2022_bahal_lenzo.pdf
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    More about this item

    Keywords

    production networks; Hulten’s theorem; disaggregated macroeconomic models; Covid-19;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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