Keynesian models of depression. Supply shocks and the COVID-19 Crisis

Ignacio Escañuela Romana ()

Papers from arXiv.org

Abstract: The objective of this work is twofold: to expand the depression models proposed by Tobin and analyse a supply shock, such as the Covid-19 pandemic, in this Keynesian conceptual environment. The expansion allows us to propose the evolution of all endogenous macroeconomic variables. The result obtained is relevant due to its theoretical and practical implications. A quantity or Keynesian adjustment to the shock produces a depression through the effect on aggregate demand. This depression worsens in the medium/long-term. It is accompanied by increases in inflation, inflation expectations and the real interest rate. A stimulus tax policy is also recommended, as well as an active monetary policy to reduce real interest rates. On the other hand, the pricing or Marshallian adjustment foresees a more severe and rapid depression in the short-term. There would be a reduction in inflation and inflation expectations, and an increase in the real interest rates. The tax or monetary stimulus measures would only impact inflation. This result makes it possible to clarify and assess the resulting depression, as well as propose policies. Finally, it offers conflicting predictions that allow one of the two models to be falsified.

Date: 2020-07, Revised 2020-07
New Economics Papers: this item is included in nep-cba and nep-mac
References: Add references at CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2007.07353 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2007.07353

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().