Infographic Mapping an Economy’s Connections

How should policymakers respond when a tariff shock hits? They might start by recognizing and planning for uneven economic effects, research suggests. Take Denmark, where the threat of US tariffs amid tensions over Greenland has loomed large. The way in which government support enters the economy in response to a shock such as a tariff can strongly influence its impact.

This insight comes from a method, developed by University of Copenhagen’s Asger Andersen, Chicago Booth’s Kilian Huber, University of Oxford’s Niels Johannesen, Harvard’s Ludwig Straub, and Emil Toft Vestergaard of Danmarks Nationalbank, that maps millions of spending and income flows across the Danish economy. The system breaks down national accounts into detailed financial flows between consumers, producers, the government, and the rest of the world. Using government records and transaction-level bank data, the researchers traced these flows across thousands of small groups of consumers and producers, defined by region and industry.

Understanding these flows, and the connections between groups, can help policymakers. A stimulus plan can boost the economy more when directed not to the people who are seemingly most affected but to those whose spending supports a region or industry experiencing unemployment. The method can also help businesses trace where their revenue ultimately comes from—and how shocks affect demand.