Discussion paper

DP14529 Covid-19 Coronavirus and Macroeconomic Policy

We provide a simple model to understand some macroeconomic implications of the coronavirus epidemic. We focus on a scenario in which the Covid-19 outbreak causes a persistent supply disruption, potentially extending beyond the end of the epidemic. We show that the spread of the virus might generate a demand-driven slump, give rise to a supply-demand doom loop, and open the door to stagnation traps induced by pessimistic animal spirits. Aggressive policies to support investment can reverse the supply-demand doom loop and jumpstart the economy out of stagnation traps.

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Citation

Fornaro, L and (eds) (2020), “DP14529 Covid-19 Coronavirus and Macroeconomic Policy”, CEPR Press Discussion Paper No. 14529. https://cepr.org/publications/dp14529