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

15 Pages Posted: 15 Jun 2020 Last revised: 24 Jul 2020

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-like shock on a simple toy economy, described by the Mark-0 Agent-Based Model that we developed and discussed in a series of previous papers. We consider a mixed supply and demand shock, and show that depending on the shock parameters (amplitude and duration), our toy 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 existence of a self-sustained "bad'' state of the economy. 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, and we highlight the potential danger of terminating these policies too early. While we only discuss a limited number of scenarios, our model is flexible and versatile enough to allow for a much wider exploration, thus serving as a useful tool for the qualitative understanding of post-COVID recovery.

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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