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Liquidity Shortfalls during the COVID 19 Outbreak: Assessment and Policy Responses

Lilas Demmou, Guido Franco, Sara Calligaris and Dennis Dlugosch

Economie et Statistique / Economics and Statistics, 2022, issue 532-33, 47-61

Abstract: [eng] The paper investigates the impact of stylised policy measures on the financial vulnerability of non-financial firms during the COVID-19 pandemic crisis. It evaluates the extent to which firms run into a liquidity crisis following the COVID-19 outbreak and the impact of policies to reduce the risks of such a crisis. The analysis relies on: an accounting model, a large dataset reporting firms’ balance sheets for 14 countries and data on the magnitude of the shock at the sector level. Results suggest that, without any policy intervention, up to 38% of firms were to face liquidity shortfalls after ten months since the implementation of confinement. Comparing the impact of different policies, the analysis shows that government support to relieve wage bills is the most effective tool, followed by debt moratorium policies. Finally, the paper zooms into labour market policies and compares the cost-efficiency of short-term work and wage subsidies schemes, highlighting how their relative efficiency depends on their design.

JEL-codes: D22 D24 H81 J38 (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Liquidity shortfalls during the COVID-19 outbreak: Assessment and policy responses (2021) Downloads
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