Estimating General Equilibrium Spillovers of Large-Scale Shocks.

The article focuses on the direct estimation of general equilibrium spillover effects—how shocks to some firms or households affect others within connected groups such as regions or sectors—using quasi-experimental or experimental variation in finance and macroeconomics. It highlights that spillover estimates are subject to mechanical biases arising from multiple overlapping spillover channels, measurement error, and nonlinear direct effects, which standard empirical methods often fail to address. The paper provides econometric guidance to detect and correct these biases, including the use of heterogeneity tests, flexible functional forms, and instrumental variables, illustrated through an application analyzing a German bank's credit shock. The findings emphasize the importance of accurately estimating both direct and spillover effects to inform policy decisions and model calibration, and offer practical advice for researchers studying spillovers across firms, households, and regions.