This papere develops a discrete-time epidemiological model to characterize the spread of economic deterioration across sectors in the United States for the period 1952-2015. It is the first model to apply an epidemiological approach to consider such spread using macroeconomic Flow of Funds data. By extending the usual one-period Markov model to a two-period setting, we incorporate the possibility that an initial slow growth period may either continue further or improve such that further economic deterioration is averted. The estimated model can be used to classify more versus less contagious sectors and identify their channels of transmission.
- Flow of Funds
- financial contagion
- economic downturns
- susceptible–infected–removed (SIR)