Macroeconomic Effects of Economic Policies During the COVID-19 Pandemic

Masaya Yasuoka and Ryoji Hasegawa
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Ryoji Hasegawa: Fukuyama City University

No 282, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: During the spread of COVID-19, behavioral restrictions were implemented as policy measures. These included avoiding non-essential outings, refraining from dining out, and reducing tourism, all of which suppressed economic activity. As a result, industries such as food services and tourism suffered severe blows, leading to a significant decline in GDP (Gross Domestic Product) in 2020. However, the government's proactive fiscal policies, particularly employment measures, such as the Employment Adjustment Subsidy, are believed to have mitigated the rise in unemployment rates. To what extent did the Employment Adjustment Subsidy help suppress the increase in unemployment? While prior studies have evaluated its effects, this paper employs a DSGE (Dynamic Stochastic General Equilibrium) model based on microeconomic foundations, deriving parameters for simulations through calibration using real-world data. It calculates the increase in unemployment resulting from GDP declines caused by consumption shocks under behavioral restrictions in the absence of the subsidy, comparing it to actual data to determine the subsidy's effectiveness in curbing unemployment. The analysis revealed that the subsidy's effect in suppressing unemployment was about half of what the government's evaluations suggested. Additionally, using input-output analysis, it was demonstrated that the Employment Adjustment Subsidy also contributed to mitigating GDP declines.

Keywords: DSGE Model; Employment Adjustment Subsidy; The Spread of COVID-19 (search for similar items in EconPapers)
JEL-codes: E24 H20 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2024-11
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