Liquidity shortfalls during the COVID-19 outbreak: Assessment and policy responses

Lilas Demmou, Guido Franco, Sara Calligaris and Dennis Dlugosch

No 1647, OECD Economics Department Working Papers from OECD Publishing

Abstract: The paper investigates the financial vulnerability of non-financial firms during the Coronavirus (COVID-19) epidemic crisis. In particular, it evaluates the extent to which firms may run into a liquidity crisis following the COVID-19 outbreak and the impact of stylised policy measures to reduce the risks and depth of such crisis. The analysis relies on three ingredients: a simple accounting model, a large dataset reporting firms’ balance sheets for 14 countries and granular data on the magnitude of the shock measuring the impact of confinement measures on economic activity (notably depending on the capacity of each sector to operate by teleworking). Results suggest that, without any policy intervention, up to 38% of firms would face liquidity shortfalls after 10 months since the implementation of confinement measures. Comparing the impact of different policies (tax deferral, debt moratorium and support to wage payments), the analysis shows that government support to relieve wage bills is the most effective tool to reduce liquidity shortages, followed by debt moratorium policies. Finally, the paper zooms into labour market policies and compares the costefficiency of short-term work and wage subsidies schemes, highlighting how their relative efficiency depends on their design.

Keywords: cash; COVID-19; job retention; liquidity (search for similar items in EconPapers)
JEL-codes: D22 D24 H81 J38 (search for similar items in EconPapers)
Date: 2021-01-22
New Economics Papers: this item is included in nep-lma
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Citations: View citations in EconPapers (14)

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Journal Article: Liquidity Shortfalls during the COVID 19 Outbreak: Assessment and Policy Responses (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:oec:ecoaaa:1647-en

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