Show simple item record Fornaro, Luca Wolf, Martin 2021-04-16T08:47:05Z 2021-04-16T08:47:05Z 2021-04
dc.description.abstract We study the effects of supply disruptions - for instance caused by the emergence of a pandemic - in an economy with Keynesian unemployment and endogenous productivity growth. By negatively affecting investment, even purely transitory negative supply shocks generate permanent output losses. The associated negative wealth effect depresses consumers’ demand, which may even fall below the exogenous fall in supply. In this case, the optimal monetary policy response flips relative to conventional wisdom, as monetary expansions are needed to fight negative output gaps. If monetary policy is not expansionary enough a supply-demand doom loop emerges, causing a recession characterized by unemployment and weak productivity growth. Innovation policies, by fostering firms’ investment, can restore full employment and healthy growth.
dc.format.mimetype application/pdf
dc.language eng
dc.language.iso eng
dc.subject.other Supply shocks
dc.subject.other Covid-19
dc.subject.other Hysteresis
dc.subject.other Investment
dc.subject.other Endogenous growth
dc.subject.other Monetary policy
dc.subject.other Fiscal policy
dc.subject.other Zero lower bound
dc.subject.other Keynesian growth
dc.subject.other Stagnation traps
dc.title The scars of supply shocks
dc.type info:eu-repo/semantics/workingPaper
dc.rights.accessRights info:eu-repo/semantics/openAccess


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