Supply and Demand in Disaggregated Keynesian Economies with an Application to the COVID-19 Crisis

We study supply and demand shocks in a disaggregated model with multiple sectors, factors, input-output linkages, downward nominal wage rigidities, credit-constraints, zero lower bound. use the to understand how COVID-19 crisis, an omnibus shock, affects output, unemployment, inflation, leads coexistence of tight slack labor markets. show that negative sectoral are stagflationary, whereas deflationary, even though both can cause Keynesian unemployment. Furthermore, complementarities production amplify spillovers from but mitigate them for shocks. This means reduce effectiveness aggregate stimulus. In stylized quantitative United States, we find each explain about one-half reduction real GDP February May 2020. Although there was as much 6 percent this concentrated certain Hence, stimulus is one quarter effective typical recession where all markets slack. (JEL E12, E23, E24, E31, E32, E62, I12)