V –, U –, L – Or W–Shaped Economic Recovery After COVID-19: Insights From an Agent Based Model

20 Pages Posted: 15 Jun 2020 Last revised: 19 Feb 2021

See all articles by Dhruv Sharma

Dhruv Sharma

École Normale Supérieure - PSL Research University - Laboratoire de Physique de l’École Normale Supérieure

Jean-Philippe Bouchaud

Capital Fund Management

Stanislao Gualdi

Capital Fund Management

Marco Tarzia

Université Paris VI Pierre et Marie Curie

Francesco Zamponi

École Normale Supérieure (ENS)

Date Written: June 15, 2020

Abstract

We discuss the impact of a COVID-19--like shock on a simple model economy, described by the previously developed Mark-0 Agent-Based Model. We consider a mixed supply and demand shock, and show that depending on the shock parameters (amplitude and duration), our model economy can display V-shaped, U-shaped or W-shaped recoveries, and even an L-shaped output curve with permanent output loss. This is due to the economy getting trapped in a self-sustained "bad" state. We then discuss two policies that attempt to moderate the impact of the shock: giving easy credit to firms, and the so-called helicopter money, i.e. injecting new money into the households savings. We find that both policies are effective if strong enough. We highlight the potential danger of terminating these policies too early, although inflation is substantially increased by lax access to credit. Finally, we consider the impact of a second lockdown. While we only discuss a limited number of scenarios, our model is flexible and versatile enough to accommodate a wide variety of situations, thus serving as a useful exploratory tool for a qualitative, scenario-based understanding of post-COVID recovery. The corresponding code is available on-line.

Keywords: agent-based model, COVID, coronavirus, policy

JEL Classification: E17, E32, E52

Suggested Citation

Sharma, Dhruv and Bouchaud, Jean-Philippe and Gualdi, Stanislao and Tarzia, Marco and Zamponi, Francesco, V –, U –, L – Or W–Shaped Economic Recovery After COVID-19: Insights From an Agent Based Model (June 15, 2020). Available at SSRN: https://ssrn.com/abstract=3627505 or http://dx.doi.org/10.2139/ssrn.3627505

Dhruv Sharma (Contact Author)

École Normale Supérieure - PSL Research University - Laboratoire de Physique de l’École Normale Supérieure ( email )

24 rue Lhomond
Paris, 75005
France

Jean-Philippe Bouchaud

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France
+33 1 49 49 59 20 (Phone)

Stanislao Gualdi

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France

Marco Tarzia

Université Paris VI Pierre et Marie Curie ( email )

175 Rue du Chevaleret
Paris, 75013
France

Francesco Zamponi

École Normale Supérieure (ENS) ( email )

45 rue d’Ulm
Paris Cedex 05, F-75230
France

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