Macro seminar
Time : 12h15 – 13h30
Date : 18 Mars 2024

Salle 3001

Christos MAKRIDIS (Arizona State University) “Learning from Friends in a Pandemic: Social Networks and the Macroeconomic Response of Consumption”

Abstract: Households often learn about the macroeconomy through social communications. We show how communication via social networks allows idiosyncratic shocks to propagate into meaningful macroeconomic responses. We first motivate such a mechanism by showing the responses of daily consumption spending of U.S. counties to plausibly exogenous variations in their social-network exposure to the COVID-19 conditions of geographically remote regions. Various identification strategies confirm that the detected consumption responses were primarily through the channel of expectations, rather than preference interdependence or physical infection risks. Then, we incorporate a belief formation mechanism through social networks into an otherwise standard heterogeneous-agent consumption model. We show that a pandemic-augmented version of this model, where infections initially hit a fraction of more connected regions and gradually propagated via social networks, produces macroeconomic dynamics more aligned with the empirical patterns of aggregate consumption and cross-sectional variations. We also show that such a mechanism is more relevant when the initial shocks hit the more connected agents and when the influences are more dispersed in the network.

Organizer : Julien PRAT (CREST)