Measuring Sectoral Supply and Demand Shocks during COVID-19

RePEc Short ID: pfa225
ORCID iD: 0000-0002-3759-2172

Brinca, Pedro; Duarte, Joao B.; Faria-e-Castro, Miguel

doi:10.20955/wp.2020.011

Working Paper Revision

Measuring Sectoral Supply and Demand Shocks during COVID-19

Abstract: We measure labor demand and supply shocks at the sector level around the COVID-19 outbreak by estimating a Bayesian structural vector autoregression on monthly statistics of hours worked and real wages. Our estimates suggest that two-thirds of the 16.24 percentage point drop in the growth rate of hours worked in April 2020 are attributable to supply. Most sectors were subject to historically large negative labor supply and demand shocks in March and April, but there is substantial heterogeneity in the size of shocks across sectors. We show that our estimates of supply shocks are correlated with sectoral measures of telework.

Keywords: Structural Vector Autoregressions; Supply and Demand Shocks; Sign Restrictions; COVID-19;

JEL Classification: E24; E30; J20;

https://doi.org/10.20955/wp.2020.011

Status: Published in European Economic Review