Demand and Supply Shocks : Evidence from Corporate Earning Calls

This paper quantifies global demand, supply, and uncertainty shocks and compares two major globalrecessions: the 2008–09 Great Recession and the COVID-19 pandemic. Two alternative approaches are used to decomposeeconomic shocks: text mining techniques on earning call transcripts and a structural Bayesian vector autoregressionmodel. The results highlight sharp contrast in the size of supply and demand shocks over time and across sectors. Whilethe Great Recession was characterized by demand shocks, COVID-19 caused sizable disruptions to both demand andsupply. These shocks were broad-based with varying relative importance across major sectors. Furthermore, certainsub-sectors, such as professional and business services, internet retail, and grocery/department stores, fared betterthan others during the pandemic. The results imply that both targeted policies and conventional countercyclical fiscaland monetary policy can accelerate the economic recovery. Large demand shocks highlight an environment of deficientdemand with countercyclical policy calibrated to the size of these shocks.