Published:
Cambridge, Mass: National Bureau of Economic Research, 2020
Published in:NBER working paper series ; no. w27152
Extent:
1 Online-Ressource; illustrations (black and white)
Language:
English
DOI:
10.3386/w27152
Identifier:
Reproduction note:
Hardcopy version available to institutional subscribers
Origination:
Footnote:
System requirements: Adobe [Acrobat] Reader required for PDF files
Mode of access: World Wide Web
Description:
We study supply and demand shocks in a general disaggregated model with multiple sectors, multiple factors, input-output linkages, downward nominal wage rigidities, credit-constraints, and a zero lower bound. We use the model to understand how the Covid-19 crisis, an omnibus of supply and demand shocks, affects output, unemployment, and inflation, and leads to the coexistence of tight and slack labor markets. Negative sectoral supply shocks are stagflationary, whereas negative sectoral demand shocks are deflationary. Furthermore, complementarities in production amplify Keynesian spillovers from negative supply shocks but mitigate them for negative demand shocks. In a stylized quantitative model of the US, we find supply and demand shocks each explain about half the reduction in real GDP. Although there is as much as 7% Keynesian unemployment, this is concentrated in certain markets. Hence, aggregate demand stimulus is less than half as effective as in a typical recession where all labor markets are slack