Learning from Friends in a Pandemic: Social Networks and the Macroeconomic Response of Consumption

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.

Keywords: Aggregate Demand, Consumption, COVID-19, Expectations, Social Networks JEL Codes: D14, E21, E71, G51

JEL Classification: D14, E21, E71, G51