Sectoral Shocks And Spillovers An Application To Covid 19

This paper examines the role of sectoral spillovers in propagating sectoral shocks in the broader economy, both in the past and during the COVID-19 pandemic. In particular, we study how shocks that occur within a sector itself and spillovers from shocks to other sectors affect sectoral activity, for a large sample of countries from 1995 to 2014. We find that both supply and demand shocks—measured as changes in, respectively, productivity and government purchases at the sector level—have large spillover effects on sector-level gross value added and on a sector’s share of the economy. We then use these historical estimates, together with the network structure of global production, to quantify the spillovers from the economic shock associated with the pandemic. We find spillover effects to be sizeable, making up a significant fraction of the overall decline in activity in 2020.Our results have implications for the design of policies with a sectoral dimension.

This paper studies changes in the transmission of common versus sectoral idiosyncratic shocks across different U.S. nonfarm business sectors during the Great Recession, and evaluates the cross-sectoral spillovers. Shocks are identified by dynamic factor methods. We find that the Great Recession is largely a time of heightened impact of common shocks— which accounts for 3/4 of aggregate volatility—and large spillovers of negative financerelated shocks. Moreover, in contrast with the earlier literature that failed to find a significant role of sectoral shocks (propagated through the input-output linkages across sectors) in driving variability in aggregate industry output, this study allows spillovers of shocks to operate through other mechanisms intertemporally. We find that prior to the recession the majority of aggregate fluctuations is explained by sector-specific shocks.

We study the effects of supply and demand shocks in a general disaggregated model with multiple sectors, factors, and input-output linkages, as well as downward nominal wage rigidities and a zero lower bound constraint. In response to shocks, some sectors become tight and operate at full capacity while others become slack and under-utilize the resources available to them. We use the model to understand how the Covid-19 crisis, an omnibus of various supply and demand shocks, affects output, unemployment, and inflation. Throughout the analysis, we focus on the role of the production network and of the elasticities of substitution. We establish that under some conditions, the details of the production network can be summarized by simple sufficient statistics. We use these sufficient statistics to conduct global comparative statics, and illustrate the intuition for our results using a nonlinear AS-AD representation of the model. Negative sectoral supply shocks and shocks to the sectoral composition of demand are necessarily stagflationary, whereas negative aggregate demand shocks are deflationary. The effects of the former are stronger and the effects of the latter are weaker with stronger complementarities in production and in consumption. These shocks interact and are amplified or mitigated through nonlinearities. We quantify our results using disaggregated data from the U.S.

The COVID-19 pandemic has led to a severe global recession with differential impacts within and across countries. This paper examines the possible persistent effects (scarring) of the pandemic on the economy and the channels through which they may occur. History suggests that deep recessions often leave long-lived scars, particularly to productivity. Importantly, financial instabilities—typically associated with worse scarring—have been largely avoided in the current crisis so far. While medium-term output losses are anticipated to be lower than after the global financial crisis, they are still expected to be substantial. The degree of expected scarring varies across countries, depending on the structure of economies and the size of the policy response. Emerging market and developing economies are expected to suffer more scarring than advanced economies.

This paper studies changes in the transmission of common versus sectoral idiosyncraticshocks across different U.S. nonfarm business sectors during the Great Recession, andevaluates the cross-sectoral spillovers. Shocks are identified by dynamic factor methods. Wefind that the Great Recession is largely a time of heightened impact of common shocks-which accounts for 3/4 of aggregate volatility-and large spillovers of negative financerelatedshocks. Moreover, in contrast with the earlier literature that failed to find a significantrole of sectoral shocks (propagated through the input-output linkages across sectors) indriving variability in aggregate industry output, this study allows spillovers of shocks tooperate through other mechanisms intertemporally. We find that prior to the recession themajority of aggregate fluctuations is explained by sector-specific shocks.

Abstract: We quantify the macroeconomic effects of COVID-19 for a small open economy by calibrating a SIR-multi-sector-macro model to Turkey. Sectoral supply shocks are based on the proximity requirements in each sector and the ability to work from home. Physical proximity determines the supply shock through its effect on infection rates. Sectoral demand shocks incorporate domestic and foreign demand, both of which adjust with infection rates. We calibrate demand shocks during COVID-19 using real-time credit card purchase data. Our results show that the optimal policy, which yields the lowest economic cost and saves the maximum number of lives, can be achieved under a full lockdown of 39 days. Economic costs are much larger for an open economy as the shocks are amplified through the international production network. A decline in foreign demand leads to losses in domestic sectors through international input-output linkages, accounting for a third of the total output loss. In addition, the reduction in capital flows deprives the network from its trade financing needs, where sectors with larger external finance needs experience larger losses. The policy options are limited given sparse fiscal resources to fight the pandemic domestically, while serving the external debt. We present historical evidence from 2001 crisis of Turkey, when fiscal, monetary and exchange rate policies were employed altogether to deal with a triple crisis of balance of payments, banking, and sovereign debt

Cars in Europe: Supply Chains and Spillovers during COVID-19 Times

This departmental paper analyzes the impact of the COVID-19 pandemic on tourism in the Asia Pacific region, Latin America, and Caribbean countries. Many tourism dependent economies in these regions, including small states in the Pacific and the Caribbean, entered the pandemic with limited fiscal space, inadequate external buffers, and foreign exchange revenues extremely concentrated in tourism. The empirical analysis leverages on an augmented gravity model to draw lessons from past epidemics and finds that the impact of infectious diseases on tourism flows is much greater in developing countries than in advanced economies.