Economic Scarring: Channels and Policy Implications

Nujin Suphaphiphat and Yu Shi

No 2022/248, IMF Working Papers from International Monetary Fund

Abstract: This paper documents the existence of medium-to-long term output losses following large crises using panel data that cover 192 countries from 1970 to 2015 and shows that the magnitudes of economic scarring depend on the nature of the shock, economic activity, and pre-crisis conditions. It also provides a thorough review of potential channels that can lead to scarring and presents novel empirical evidence on the significance of supply-side channels using cross-country sectoral-level data. Finally, the paper discusses policy implications based on the empirical findings.

Keywords: Economic scarring; covid; pandemic; health crisis; systemic banking crisis; economic shock; hysteresis; growth; crises; scarring channels; employment; sectoral output loss; macroeconomic policy; Policy implication; panel data; impulse Response; scarring channel; Systemic crises; Human capital; Global (search for similar items in EconPapers)
Pages: 21
Date: 2022-12-09
New Economics Papers: this item is included in nep-fdg
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Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2022/248

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