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Learning from Friends in a Pandemic: Social networks and the macroeconomic response of consumption

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  • Makridis, Christos A.
  • Wang, Tao

Abstract

Aggregate events often start locally with households learning about the unfolding of events through social communication. Using plausibly exogenous variation in counties’ social network exposure to geographically remote regions during the COVID-19 pandemic, we quantify the propagation of idiosyncratic COVID-19 social network weighted shocks to consumption spending. We present a wide array of tests that directly control for the role of physical mobility, and physical distance, and isolate the role of geographically distant counties to show that the detected consumption responses were primarily through the channel of expectations, rather than physical infection risks or other common economic and policy shocks.

Suggested Citation

  • Makridis, Christos A. & Wang, Tao, 2024. "Learning from Friends in a Pandemic: Social networks and the macroeconomic response of consumption," European Economic Review, Elsevier, vol. 169(C).
  • Handle: RePEc:eee:eecrev:v:169:y:2024:i:c:s001429212400165x
    DOI: 10.1016/j.euroecorev.2024.104836
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    More about this item

    Keywords

    Aggregate demand; Consumption; COVID-19; Expectations; Social networks;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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