Keynesian Production Networks and the COVID-19 Crisis: A Simple Benchmark
- (pp. 272-76)
AbstractThe COVID-19 crisis is a seemingly all-encompassing shock to supply and demand. These negative shocks affected industries differently: some switched to remote work, maintaining employment and production, while others reduced capacity and shed workers. We consider a stripped-down version of the model in Baqaee and Farhi (2020). The model allows for an arbitrary input-output network, complementarities, incomplete markets, downward wage rigidity, and a zero lower bound. Nevertheless, the model has a stark property: factor income shares at the initial equilibrium are global sufficient statistics for the production network, clarifying assumptions that must be broken if the network is to matter.
CitationBaqaee, David, and Emmanuel Farhi. 2021. "Keynesian Production Networks and the COVID-19 Crisis: A Simple Benchmark." AEA Papers and Proceedings, 111: 272-76. DOI: 10.1257/pandp.20211107
- D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian
- E32 Business Fluctuations; Cycles
- I12 Health Behavior