Keynesian Production Networks and the COVID-19 Crisis: A Simple Benchmark

David Baqaee and Emmanuel Farhi

AEA Papers and Proceedings, 2021, vol. 111, 272-76

Abstract: The 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.

JEL-codes: D24 E12 E32 I12 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Keynesian Production Networks and the Covid-19 Crisis: A Simple Benchmark (2021)
Working Paper: Keynesian Production Networks and the Covid-19 Crisis: A Simple Benchmark (2021)
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DOI: 10.1257/pandp.20211107

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