Macroeconomic Implications of COVID-19: Can Negative Supply Shocks Cause Demand Shortages?

Abstract

I do not have any conflict of interest or financial relationship that would bear on the research in this paper. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Fiscal Policy during a Pandemic

“…This condition is similar to 1/ρ > 1 in Guerrieri et al (2020). Figure 10 shows what a Keynesian supply shock looks like in this model.…”

“…Non-Conventional Parameters Three parameters, in particular, are not conventional and can be important for the results in the following sections: the elasticity of substitution between services and non-services σ a , the level of wage stickiness ζ, and the congestion parameter ψ. Appendix B discusses the role of σ a in the context of Keynesian supply shocks a la Guerrieri et al (2020). Appendix C repeats the main analysis for different values of ζ and ψ, and shows that qualitatively the main results of the paper are unchanged, even though the quantitative dynamics are different.…”

“…My analysis is complementary to theirs: I take the epidemic as exogenous and given, and study how a fiscal authority can help stabilize income and consumption during the epidemic. Closely related is the work of Guerrieri et al (2020), who show that supply shocks can generate aggregate effects that "look like" aggregate demand shocks in a multiple-sector, incomplete markets economy under certain conditions. While I study the effects of fiscal policy in the context of a pandemic that is modeled as an aggregate demand shock, I show that a supply shock can generate very similar aggregate effects under parameter conditions that are related to theirs.…”

Financing Firms in Hibernation During the COVID-19 Pandemic

“…Unlike in previous global crises, during the COVID-19 outbreak economies have faced a combination of a supply shock (most immediately, employees cannot go to work, impairing production, disrupting supply chains, freezing investments) and a demand shock (notably, households and firms cannot buy certain goods and services), which reinforce each other (Eichenbaum et al 2020;Guerrieri et al 2020;Rogoff 2020). The shock has transmitted throughout the economy, affecting firms and industries across the board.…”

Africa's Pulse, No. 21, Spring 2020 : An Analysis of Issues Shaping Africa’s Economic Future

“…Meanwhile, at its March meeting, the Central Bank of Nigeria left its monetary policy rate unchanged despite rising inflation. 31 Macroeconomic stimulus measures such as the ones adopted during the 2008-09 global financial crisis may not work in the short term this time around, as some sectors of the economy are shut down-especially those that are contact-intensive(Guerrieri et al 2020).…”