Propagation of Housing Market Disruptions During the Great Recession: Supply Chain Network Channel
60 Pages Posted: 15 Jun 2018 Last revised: 3 Oct 2019
Date Written: August 7, 2018
This paper investigates a role of supply chain network in transmitting housing market disruptions during the Great Recession. We build up a unique micro-level data that combines local housing market condition, firms' sales in each local market, and firm-level supply chain network information. Exploiting firm-specific demand shock stemming from cross-market variation in house price changes and an initial difference in firms' local sales, we find that such shock not only affects downstream firms but also transmits to their suppliers. The estimated supplier-level elasticity is quantitatively large, reflecting larger role of downstream firms with higher elasticity in the network structure. To quantify such propagation at the aggregate level, we build up a parsimonious network model calibrated to match the micro-level data. Our counterfactual analysis shows that approximately 18% of the observed drop in the aggregate output can be attributed to the propagating role of the supply chain network.
Keywords: Great Recession, housing market, network, supply chain, input-output linkages, propagation
JEL Classification: E23, E32, E44, E60, L14
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