An Epidemiological Model of Economic Crisis Spread Across Sectors in the United States

Abstract

This paper develops a discrete-time epidemiological model for the spread of economic crises across sectors in the United States for the period 1952-2015. It is the first to use an epidemiological approach with macroeconomic (Flow of Funds) data. An extension of the usual one-period Markov model to a two-period setting incorporates the concept of downturns that may either precede a crisis or from which the sector may recover and avert a crisis. The results indicate that the nonfinancial business and private depository institutions & money market mutual funds sectors are highly contagious while the monetary authority is the least contagious.

Keywords: Flow of Funds, Economic Downturn, Susceptible-Infected-Removed (SIR), Contagion, Epidemiology

JEL Classification: E37, E32, E01, G01