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

34 Pages Posted: 17 May 2020

See all articles by Christos Makridis

Christos Makridis

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Tao Wang

Department of Economics, Johns Hopkins University

Date Written: May 15, 2020

Abstract

How do individuals adjust their consumption in response to information disseminated through peers and the social network? Using new micro-data on consumption, coupled with geographic friendship ties to measure social connectivity, this paper quantifies the role of social networks as a propagation mechanism for understanding aggregate fluctuations in consumption. Using the COVID-19 pandemic as a source of variation, we find that a 10% rise in cases and deaths in counties connected through the social network is associated with a 0.64% and 0.33% decline in consumption expenditures--roughly three to seven times as large as the direct effects of local cases or deaths. Counties more socially connected to epicenter countries of the pandemic also saw a bigger drop in consumption. These effects are concentrated among consumer goods and services that rely more on social-contact, suggesting that individuals incorporate the experiences from their social network to inform their own consumption choices. We are working on incorporating this micro-economic evidence into a heterogeneous agent model and social interaction to study the aggregate demand implications.

Keywords: Aggregate Demand, Consumption, Coronavirus, COVID-19, Expectations, Peer Effects, Social Networks

JEL Classification: D14, E21, E71, G51

Suggested Citation

Makridis, Christos and Wang, Tao, Learning from Friends in a Pandemic: Social Networks and the Macroeconomic Response of Consumption (May 15, 2020). Available at SSRN: https://ssrn.com/abstract=3601500 or http://dx.doi.org/10.2139/ssrn.3601500

Christos Makridis (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Tao Wang

Department of Economics, Johns Hopkins University ( email )

Baltimore, MD 20036-1984
United States

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