The macroeconomics of COVID-19: a two-sector interpretation

Halvor Mehlum and Ragnar Torvik

Review of Keynesian Economics, 2021, vol. 9, issue 2, 165-174

Abstract: For a developed market economy, the COVID-19 crisis is a new type of crisis, but such a crisis has parallels with economies at other times, and with crises in many places. We discuss some mechanisms from the traditional macro literature and from the literature on macroeconomics for developing countries. Phenomena such as bottlenecks, rationing, forced savings, production constrained by access to inputs, liquidity constraints, sector heterogeneity, and costs running despite production being shut down, are all permanent phenomena in developing countries. During the COVID-19 crisis, however, they have also emerged as key mechanisms in developed market economies. We discuss some of these well-developed but partially forgotten mechanisms by extending simple textbook descriptions, and we provide some examples of how the effects of policy are changed in a time of crisis.

Keywords: COVID-19 crisis; multi-sector macro model; demand and supply interactions (search for similar items in EconPapers)
JEL-codes: B22 E12 E62 E65 (search for similar items in EconPapers)
Date: 2021
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