The pandemic economic crisis, precautionary behavior, and mobility constraints: an application of the dynamic disequilibrium model with randomness†

A new view of technological change

Joseph Stiglitz and Martin Guzman

Industrial and Corporate Change, 2021, vol. 30, issue 2, 467-497

Abstract: This article analyzes the economic impact of the pandemic, providing insights into the consequences of alternative policies. Our framework focuses on three key features: (i) The coronavirus disease (COVID-19) is a sectoral shock of unknown depth and duration affecting some sectors and technologies more than others; (ii) there are constraints in shifting resources across sectors; and (iii) there is a high level of uncertainty about the disease and its economic aftermath, inducing a high level of precautionary behavior by some agents and leading to others facing more severe credit constraints. Because of macroeconomic externalities, precautionary behavior exacerbates the downturn, and even sectors where COVID-19 does not directly affect consumption or production may face unemployment. Multipliers associated with different government expenditure programs differ markedly. The article describes policies that can mitigate precautionary behavior, leading to reduced unemployment. Greater wage flexibility may lead to increased unemployment.

JEL-codes: B22 E21 E23 E24 E61 E63 G28 J21 J23 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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