2026-04-17T20:43:33Zhttps://recercat.cat/oai/requestoai:recercat.cat:10230/471362025-12-23T02:15:34Zcom_2072_6col_2072_452953
RECERCAT
author
Fornaro, Luca
author
Wolf, Martin
2021-04-16T08:47:05Z2021-04-16T08:47:05Z2021-04
We study the effects of supply disruptions - for instance caused by the emergence of a
pandemic - in an economy with Keynesian unemployment and endogenous productivity growth. By negatively affecting investment, even purely transitory negative supply shocks generate permanent output losses. The associated negative wealth effect depresses consumers’ demand, which may even fall below the exogenous fall in supply. In this case, the optimal monetary policy response flips relative to conventional wisdom, as monetary expansions are needed to fight negative output gaps. If monetary policy is not expansionary enough a supply-demand doom loop emerges, causing a recession characterized by unemployment and weak productivity growth. Innovation policies, by fostering firms’ investment, can restore full employment and healthy growth.
info:eu-repo/semantics/openAccess
Supply shocks
Covid-19
Hysteresis
Investment
Endogenous growth
Monetary policy
Fiscal policy
Zero lower bound
Keynesian growth
Stagnation traps
The scars of supply shocks
info:eu-repo/semantics/workingPaper