How to Deal with a Coronavirus Economic Recession?
18 Pages Posted: 20 May 2020
Date Written: May 18, 2020
2020 world economic downturn associated with the restrictions intended to fight COVID-19 pandemic is a structural recession caused by adverse supply shock. It is similar to recessions caused (or aggravated) by post war conversion of defense industries, by oil price shocks (1973, 1979, 2007), and by the transition to the market in post-communist countries in the 1990s (transformational recession).
Whereas traditional Keynesian policy (absorption of adverse supply shock by means of expansionary fiscal and monetary policy) can help, best results are achieved by government industrial policies promoting restructuring – transferring resources (capital and labor) from the contracting industries to the expanding. The experience of China and some other East Asian countries that seem to be more successful in overcoming the coronavirus recession provides additional evidence.
Keywords: Structural recession, adverse supply shock, demand shock, conventional Keynesian response to recession, restructuring, industrial policy
JEL Classification: E32, E6, E65, O25, P20, P51
Suggested Citation: Suggested Citation