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Disequilibrium propagation of quantity constraints: application to the COVID lockdowns

Author

Listed:
  • Antoine Mandel

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Vipin Veetil

    (IIMK - Indian Institute of Management Kozhikode [Inde])

Abstract

This paper develops a network economy model to study the propagation of the COVID lockdown shock. Firms are related to each other through buyer–seller relations in the market for intermediate inputs. Firms choose production levels and input combinations using prices that emerge from local interactions. Nothing forbids trade at out-of-equilibrium prices. In such a setting, disequilibrium spills over from one market to another due to the interconnections between markets. These disequilibrium dynamics are capable of generating unemployment when workers released by contracting firms are not frictionlessly absorbed by expanding firms. We calibrate the model to the US economy using a data set with more than 200,000 buyer–seller relations between about 70,000 firms. Computational experiments on the calibrated economy suggest that the COVID lockdown generates a sizeable decline in GDP. The endogenously generated unemployment dynamics is a primary determinant of the cost of the lockdown.

Suggested Citation

  • Antoine Mandel & Vipin Veetil, 2023. "Disequilibrium propagation of quantity constraints: application to the COVID lockdowns," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-04409364, HAL.
    • Handle: RePEc:hal:cesptp:halshs-04409364
    DOI: 10.1017/S136510052200061X
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