Disequilibrium propagation of quantity constraints: application to the COVID lockdowns

Antoine Mandel and Vipin P. Veetil

Macroeconomic Dynamics, 2023, vol. 27, issue 8, 2110-2136

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.

Date: 2023
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Working Paper: Disequilibrium propagation of quantity constraints: application to the COVID lockdowns (2023)
Working Paper: Disequilibrium propagation of quantity constraints: application to the COVID lockdowns (2023)
Working Paper: Disequilibrium propagation of quantity constraints: application to the COVID lockdowns (2023)
Working Paper: Disequilibrium propagation of quantity constraints: application to the COVID lockdowns (2022)
Working Paper: Disequilibrium propagation of quantity constraints: application to the COVID lockdowns (2022)
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