Of course, shocks to supply also induce demand shocks, since firms and households adjust expenditure plans to the downgraded outlook for incomes and production. [21] See Cappariello, R., Franco-Bedoya, S., Gunnella, V. and Ottaviano, G. I. P. (forthcoming).
In the context of a multi-country, multisector general equilibrium model, they show that, as global value chain relations intensify, the effects of trade cost shocks are amplified. The amplification effects crucially depend on global value chain-related components of trade. [22] See Bloom, N. (2009), “The Impact of Uncertainty Shocks”, Econometrica, Vol.