The scars of supply shocks
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- dc.contributor.author Fornaro, Luca
- dc.contributor.author Wolf, Martin
- dc.date.accessioned 2021-04-16T08:47:05Z
- dc.date.available 2021-04-16T08:47:05Z
- dc.date.issued 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.ca
- dc.format.mimetype application/pdf*
- dc.identifier.uri http://hdl.handle.net/10230/47136
- dc.language eng
- dc.language.iso engca
- dc.rights.accessRights info:eu-repo/semantics/openAccessca
- dc.subject.other Supply shocksca
- dc.subject.other Covid-19ca
- dc.subject.other Hysteresisca
- dc.subject.other Investmentca
- dc.subject.other Endogenous growthca
- dc.subject.other Monetary policyca
- dc.subject.other Fiscal policyca
- dc.subject.other Zero lower boundca
- dc.subject.other Keynesian growthca
- dc.subject.other Stagnation trapsca
- dc.title The scars of supply shocksca
- dc.type info:eu-repo/semantics/workingPaperca