Covidonomics or the Curious Case of a Supply Constrained Keynesian Equilibrium

Dipankar Dasgupta and Meenakshi Rajeev ()
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Dipankar Dasgupta: Indian Statistical Institute
Meenakshi Rajeev: Institute for Social and Economic Change

A chapter in Managing Pandemic and Correcting Development Fundamentals, 2023, pp 11-28 from Springer

Abstract: Abstract The COVID-19 pandemic that started spreading in India in 2020 produced an extraordinary situation not observed at any time in the last century. Already a reeling economy at that point in time, it faced a major jolt and plunged further. Lack of knowledge about a hitherto unknown virus created a feeling of immense fear impacting demand as well as supply. Subsequently, with the discovery of vaccines, though, the situation has improved, but fear of new strains continues to create disturbances. While a large body of literature has emerged on the subject for the Indian context, most studies are empirical in nature, and theoretical modelling of the situation is hitherto missing. This paper fills this research gap by developing a simple macroeconomic model of Keynesian type but bringing in the concept of transaction costs which occurred due to the fear of the disease and the lockdown. The resulting scenario appears to resemble what we call a ‘supply constrained’ Keynesian equilibrium. The paper then looks at the medium-term effects by considering the subsequent invention of vaccines and other geopolitical developments.

Keywords: Geopolitical situation; Inflation; Keynesian equilibrium; Transaction costs; Aggregate demand; Aggregate supply; Disequilibrium (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:isbchp:978-981-19-8680-2_2

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DOI: 10.1007/978-981-19-8680-2_2

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