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Estimating General Equilibrium Spillovers of Large-Scale Shocks

Author

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  • Kilian Huber
  • Holger Mueller

Abstract

Large-scale shocks directly affect some firms and households and indirectly affect others through general equilibrium spillovers. In this paper, I describe how researchers can directly estimate spillovers using quasi-experimental or experimental variation. I then argue that spillover estimates suffer from distinct sources of mechanical bias that standard empirical tools cannot resolve. These biases are particularly relevant in finance and macroeconomics, where multiple spillover channels and nonlinear effects are common. I offer guidance on how to detect and overcome mechanical biases. An application and several examples highlight that the suggested methods are broadly relevant and can inform policy and multiplier calculations.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Kilian Huber & Holger Mueller, 2023. "Estimating General Equilibrium Spillovers of Large-Scale Shocks," The Review of Financial Studies, Society for Financial Studies, vol. 36(4), pages 1548-1584.
  • Handle: RePEc:oup:rfinst:v:36:y:2023:i:4:p:1548-1584.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhac057
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    More about this item

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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