Question

The COVID-19 pandemic har enormous financial consequences. The International Monetary Fund (IMF) has predicted a 3% decrease in world GDP. Measures against further spread of infection lead to layoffs and unemployment. The government has put in place measures that cause heavy burdens on public budgets.

(A) Analyze with models you think are relevant, the most important consequences the pandemic can have for key macroeconomic variables.

(B) Provide a list of measures to counteract these consequences.

Answer 1

Ans.

A)

We utilize the quarterly QUEST model created inside DG ECFIN. This is a standard New Keynesian large scale model of the world economy. Creation is modeled with a neoclassical creation work utilizing capital and work as information. The life-cycle speculation is utilized to model utilization. A small amount of family units are liquidity-compelled. Firms work under monopolistic rivalry in the merchandise market and structure their value, work request and venture choices by expanding the current estimation of their income, considering innovative requirements and request conditions for their particular items. Firms additionally face modification costs at costs, work and capital. Wages are resolved on an incompletely serious work market.

Ostensible rigidities forestall a fast reaction of ostensible wages and costs to economic stuns. The areas of the world are connected through exchange and worldwide money related streams. While ascertaining the economic effects, we recognize flexibly and request effects. The flexibly effects emerge from a misfortune in hours worked, while the request effects or mental effects result predominantly from careful steps taken by the populace to stay away from disease. All things considered, certain exercises, such as voyaging and meeting also, associating with others in cafés, bars, films, and so forth will be generously decreased. We have assessed the expenses of a pandemic utilizing a full scale model.

B)

We assess GDP reduction under different suppositions. The macroeconomic effects of a future pandemic as assessed here are generally of a similar size as those of a significant downturn. Measures to counteract these consequences will be lowering interest rate , higher liquidity , financial stimulus , control on the pandemic and stringent monitoring of the health situation.