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

This paper studies how shocks to the social network can have aggregate effects. First, using daily consumption data across counties over the COVID-19 pandemic and Facebook's Social Connectedness Index (SCI), we find that a 10% rise in SCI-weighted cases and deaths is associated with a 0.18% and 0.23% decline in consumption expenditures. These consumption 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. Second, we calibrate a heterogenous-agent model with market incompleteness where agents form their perceptions about the local infection conditions subject to social influences. Our model shows how the aggregate consumption has further dropped due to the presence of social network amplification given the pandemic outbreaks first took place in well-connected regions. We also show how the size of aggregate responses depends on the location of the initial shocks and structure of the network.