a columen by Luca Fornaro (CREI; Universitat Pompeu Fabra; Barcelona GSE) and Martin Wolf (University of Vienna; CEPR) for VOX: CEPR’s Policy Portal
The consensus is that the coronavirus outbreak will cause a negative supply shock to the world economy, by forcing factories to shut down and disrupting global supply chains.
This column develops a simple model to show that the spread of the virus might cause a demand-driven slump, give rise to a supply-demand doom loop, and open the door to stagnation traps induced by pessimistic animal spirits.
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Labels:
coronavirus, COVID-19, supply_shock,
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