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Disentangling Supply and Demand Shocks in a Networked Economy

Author

Listed:
  • Hiroyuki Asai

    (The University of Tokyo)

  • Daisuke Fujii

    (International Monetary Fund)

  • Taisuke Nakata

    (University of Tokyo)

Abstract

We develop a multi-sector general-equilibrium model with production networks that can be used to identify sector-level supply and demand shocks from observed price and output data. In our model, decreasing returns to scale in production create an upwardsloping supply curve at the sector level. Applying our model to the COVID-19 crisis in Japan, we find that negative demand shocks were the key driver of the economic downturn in 2020 and that negative supply shocks mitigated the decline in prices. We also find that sector-level demand stimulus can increase real GDP and that its effects depend importantly on targeted sectors.

Suggested Citation

  • Hiroyuki Asai & Daisuke Fujii & Taisuke Nakata, 2025. "Disentangling Supply and Demand Shocks in a Networked Economy," CARF F-Series CARF-F-612, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    • Handle: RePEc:cfi:fseres:cf612
    as

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    References listed on IDEAS

    as
    1. Hottman, Colin J. & Monarch, Ryan, 2020. "A matter of taste: Estimating import price inflation across U.S. income groups," Journal of International Economics, Elsevier, vol. 127(C).
    2. Koji Nakamura & Shogo Nakano & Mitsuhiro Osada & Hiroki Yamamoto, 2024. "What Caused the Pandemic-Era Inflation?: Application of the Bernanke-Blanchard Model to Japan," Bank of Japan Working Paper Series 24-E-1, Bank of Japan.
    3. Redding, Stephen J. & Weinstein, David E., 2024. "Accounting for trade patterns," Journal of International Economics, Elsevier, vol. 150(C).
    4. Shoven, John B & Whalley, John, 1984. "Applied General-Equilibrium Models of Taxation and International Trade: An Introduction and Survey," Journal of Economic Literature, American Economic Association, vol. 22(3), pages 1007-1051, September.
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