From a Recession to the COVID-19 Pandemic: Inflation–Unemployment Comparison between the UK and India

Vijay Victor, Joshy Joseph Karakunnel, Swetha Loganathan and Daniel Francois Meyer
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Vijay Victor: Department of Economics, CHRIST University, Bengaluru 560029, Karnataka, India
Joshy Joseph Karakunnel: Department of Economics, CHRIST University, Bengaluru 560029, Karnataka, India
Swetha Loganathan: Department of Economics, CHRIST University, Bengaluru 560029, Karnataka, India
Daniel Francois Meyer: College of Business and Economics, University of Johannesburg, Auckland Park 2006, South Africa

Economies, 2021, vol. 9, issue 2, 1-19

Abstract: The recession in India and the UK peaked in 2017 due to the implications of new policy initiatives. The outbreak of the COVID-19 pandemic at the beginning of 2020 intensified the crisis, causing a drastic decline in aggregate demand and output. India and the UK have resorted to monetary and fiscal stimulus packages to face the economic crisis. This study investigated the inflation–unemployment dynamics during the recession and COVID-19 times in India and the UK. Using a generalized additive model (GAM), the results of this study revealed that the recession had given way to stagflation in India. In contrast, in the UK, it has led to a more severe recession in the short-run. During the downturn, policy initiatives aggravate the recession and eventually turn to stagflation in India due to inflation caused by the weak supply side. However, in the UK, the policy initiatives during this downturn pushed the economy into a deeper recession due to reduced demand. The outbreak of the COVID-19 pandemic has had a similar recessionary impact on both economies. A time horizon based recovery plan is suggested to help the economies recover from stagflation and even deeper recession. This framework could enable policymakers to choose the right path of recovery within the shortest possible time.

Keywords: COVID-19; inflation; unemployment monetary policy; fiscal policy (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2021
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