scispace - formally typeset
Search or ask a question
Journal ArticleDOI

V-, U-, L- or W-shaped economic recovery after Covid-19: Insights from an Agent Based Model.

02 Mar 2021-PLOS ONE (Public Library of Science (PLoS))-Vol. 16, Iss: 3, pp 1-22
TL;DR: In this article, the authors discuss the impact of a Covid-19-like shock on a simple model economy, described by the previously developed Mark-0 Agent-Based Model, and show that depending on the shock parameters (amplitude and duration), their model economy can display V-shaped, U-shaped or W-shaped recoveries, and even an L-shaped output curve with permanent output loss.
Abstract: We discuss the impact of a Covid-19-like shock on a simple model economy, described by the previously developed Mark-0 Agent-Based Model. We consider a mixed supply and demand shock, and show that depending on the shock parameters (amplitude and duration), our model economy can display V-shaped, U-shaped or W-shaped recoveries, and even an L-shaped output curve with permanent output loss. This is due to the economy getting trapped in a self-sustained "bad" state. We then discuss two policies that attempt to moderate the impact of the shock: giving easy credit to firms, and the so-called helicopter money, i.e. injecting new money into the households savings. We find that both policies are effective if strong enough. We highlight the potential danger of terminating these policies too early, although inflation is substantially increased by lax access to credit. Finally, we consider the impact of a second lockdown. While we only discuss a limited number of scenarios, our model is flexible and versatile enough to accommodate a wide variety of situations, thus serving as a useful exploratory tool for a qualitative, scenario-based understanding of post-Covid recovery. The corresponding code is available on-line.

Content maybe subject to copyright    Report

Citations
More filters
Journal ArticleDOI
TL;DR: In this article , an infectious disease spreads across the network of agents' social and economic contacts and feeds back on the economic dimension of the model through various channels such as employment and consumption demand.
Abstract: Abstract We employ a new macroeconomic–epidemiological agent-based model to evaluate the “lives vs livelihoods” trade-off brought to the fore by coronavirus disease (Covid-19). An infectious disease spreads across the network of agents’ social and economic contacts and feeds back on the economic dimension of the model through various channels such as employment and consumption demand. Under a lockdown (LD) scenario, the model is able to closely reproduce the epidemiological dynamics of the first wave of the Covid-19 epidemic in the Lombardy region of Italy. We find that, in the presence of non-pharmaceutical interventions, there is no trade-off between lives and macroeconomic losses as a stricter LD eventually leads to superior outcomes along both dimensions. We also evaluate the efficacy of various macroeconomic stabilization policies designed to counteract the downturn generated by the epidemic and LD measures. In an agent-based setting we gain additional insights on the way in which such policies impact not only on gross domestic product but also, for instance, on firms’ defaults and relative prices. Liquidity support for firms, a short-time working scheme with compensation for workers, and direct transfer to households stand out as the most effective policy tools.

22 citations

Journal ArticleDOI
Monica Cugno1
TL;DR: In this paper , the authors explored the effects of openness to Industry 4.0 on the perceived production recovery post the COVID-19 pandemic, mediated by digital and classical reorganization.

15 citations

Journal ArticleDOI
TL;DR: The authors developed a methodology for tracking in real-time the impact of shocks (such as natural disasters, financial crises or pandemics) on gross domestic product (GDP) by analyzing high-frequency electricity market data.

12 citations

Journal ArticleDOI
TL;DR: In this article , a dynamic disequilibrium input-output model was used to forecast the economics of the COVID-19 pandemic, which was designed to understand the upstream and downstream propagation of the industry-specific demand and supply shocks caused by the crisis, which were exceptional in their severity, suddenness and heterogeneity across industries.

9 citations

Journal ArticleDOI
TL;DR: In this paper, the authors assess the impact of the pandemic shocks on the small and medium business segments in India and explore the strategies that potentially take the segments back to recovery and growth.
Abstract: Purpose The novel coronavirus (COVID-19) leaves Indian business teetering on the edge of survival. This paper aims to set out to assess the impact of the pandemic shocks on the small and medium business segments in India. The research also explores the strategies that potentially take the segments back to recovery and growth. Design/methodology/approach The findings draw on the perspectives of academic and business people, and the authors use linear and nonlinear regression modelling under three recovery scenarios to support our arguments. Findings Evidence suggests that the shocks to business are manifold and the severity of most of the issues will aggravate as the recovery prolongs. Practical implications The paper explains the rationale of realistic strategies and compares its effects across potent recoveries. The findings are useful for both academics and business and relates to the strategic decisions that would be taken by small and medium enterprises to expedite recovery from the crisis. Originality/value The research is unique in surveying the academics and entrepreneurs about the impact of COVID-19 on Indian business.

7 citations

References
More filters
Journal ArticleDOI
TL;DR: In this paper, a dynamic stochastic general equilibrium (DSGE) model with sticky prices and wages for the euro area was developed and estimated with Bayesian techniques using seven key macroeconomic variables: GDP, consumption, investment, prices, real wages, employment, and the nominal interest rate.
Abstract: This paper develops and estimates a dynamic stochastic general equilibrium (DSGE) model with sticky prices and wages for the euro area. The model incorporates various other features such as habit formation, costs of adjustment in capital accumulation and variable capacity utilization. It is estimated with Bayesian techniques using seven key macroeconomic variables: GDP, consumption, investment, prices, real wages, employment, and the nominal interest rate. The introduction of ten orthogonal structural shocks (including productivity, labor supply, investment, preference, cost-push, and monetary policy shocks) allows for an empirical investigation of the effects of such shocks and of their contribution to business cycle e uctuations in the euro area. Using the estimated model, we also analyze the output (real interest rate) gap, dee ned as the difference between the actual and model-based potential output (real interest rate). (JEL: E4, E5)

2,767 citations

Journal ArticleDOI
TL;DR: In this article, the authors explore seven different scenarios of how COVID-19 might evolve in the coming year using a modelling technique developed by Lee and McKibbin (2003) and extended by McKibbin and Sidorenko (2006) and examine the impacts of different scenarios on macroeconomic outcomes and financial markets in a global hybrid DSGE/CGE general equilibrium model.
Abstract: The outbreak of coronavirus named COVID-19 has disrupted the Chinese economy and is spreading globally. The evolution of the disease and its economic impact is highly uncertain which makes it difficult for policymakers to formulate an appropriate macroeconomic policy response. In order to better understand possible economic outcomes, this paper explores seven different scenarios of how COVID-19 might evolve in the coming year using a modelling technique developed by Lee and McKibbin (2003) and extended by McKibbin and Sidorenko (2006). It examines the impacts of different scenarios on macroeconomic outcomes and financial markets in a global hybrid DSGE/CGE general equilibrium model. The scenarios in this paper demonstrate that even a contained outbreak could significantly impact the global economy in the short run. These scenarios demonstrate the scale of costs that might be avoided by greater investment in public health systems in all economies but particularly in less developed economies where health care systems are less developed and popultion density is high.

1,270 citations

ReportDOI
TL;DR: In this article, the authors extend the canonical epidemiology model to study the interaction between economic decisions and epidemics, and they show that people's decision to cut back on consumption and work reduces the severity of the epidemic, as measured by total deaths.
Abstract: We extend the canonical epidemiology model to study the interaction between economic decisions and epidemics. Our model implies that people’s decision to cut back on consumption and work reduces the severity of the epidemic, as measured by total deaths. These decisions exacerbate the size of the recession caused by the epidemic. The competitive equilibrium is not socially optimal because infected people do not fully internalize the effect of their economic decisions on the spread of the virus. In our benchmark model, the best simple containment policy increases the severity of the recession but saves roughly half a million lives in the U.S.

715 citations

ReportDOI
TL;DR: In this article, the authors present a theory of Keynesian supply shocks: supply shocks that trigger changes in aggregate demand larger than the shocks themselves, and argue that the economic shocks associated to the COVID-19 epidemic may have this feature.
Abstract: We present a theory of Keynesian supply shocks: supply shocks that trigger changes in aggregate demand larger than the shocks themselves. We argue that the economic shocks associated to the COVID-19 epidemic—shutdowns, layoffs, and firm exits—may have this feature. In one-sector economies supply shocks are never Keynesian. We show that this is a general result that extend to economies with incomplete markets and liquidity constrained consumers. In economies with multiple sectors Keynesian supply shocks are possible, under some conditions. A 50% shock that hits all sectors is not the same as a 100% shock that hits half the economy. Incomplete markets make the conditions for Keynesian supply shocks more likely to be met. Firm exit and job destruction can amplify the initial effect, aggravating the recession. We discuss the effects of various policies. Standard fiscal stimulus can be less effective than usual because the fact that some sectors are shut down mutes the Keynesian multiplier feedback. Monetary policy, as long as it is unimpeded by the zero lower bound, can have magnified effects, by preventing firm exits. Turning to optimal policy, closing down contact-intensive sectors and providing full insurance payments to affected workers can achieve the first-best allocation, despite the lower per-dollar potency of fiscal policy.

675 citations

Book ChapterDOI
01 Jan 1995
TL;DR: For example, this paper pointed out that since the Great Depression of the 1930s, the focus of economic analysis has been on short-run fluctuations of a cyclical character, and that inadequate attention is given to the possibility of satisfying both sets of objectives simultaneously.
Abstract: During the late 19th and early 20th centuries, the problems of the day were of a kind that led economists to concentrate on the allocation of resources and, to a lesser extent, economic growth, and to pay little attention to short-run fluctuations of a cyclical character. Since the Great Depression of the 1930s, this emphasis has been reversed. Economists now tend to concentrate on cyclical movements, to act and talk as if any improvement, however slight, in control of the cycle justified any sacrifice, however large, in the long-run efficiency, or prospects for growth, of the economic system. Proposals for the control of the cycle thus tend to be developed almost as if there were no other objectives and as if it made no difference within what general framework cyclical fluctuations take place. A consequence of this attitude is that inadequate attention is given to the possibility of satisfying both sets of objectives simultaneously.

525 citations