Aggregate Fluctuations, Network Effects, and Covid-19

We decompose the macroeconomic impact of Covid-19 in the US using three production network measures. First, we estimate the aggregate indirect effect of sectoral employment shocks, finding these "network spillovers" account for approximately 72% of the decline in real GDP over the second quarter of 2020. Second, we show that downstream propagation explains most of the aggregate effect of the sector-specific disruptions. Specifically, 77% of the GDP decline constitutes the effect of shocks to supplier sectors on downstream customers. Finally, higher-order feedback is mostly inconsequential in explaining the depth of the contraction: only 5% of the aggregate impact is attributed to second-, third- and higher-round effects of the initial shocks