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HOME Knowledge Insight Publications Capital Markets & IT - lakyara Capital Markets & IT -lakyara List Capital Markets & IT - lakyara May 2020 Putting the economic shock of the coronavirus in context (1) Overview using a macroeconomic model

Putting the economic shock of the coronavirus in context
(1) Overview using a macroeconomic model

May. 19, 2020

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Executive Summary

  • The economic shock from the coronavirus pandemic is fundamentally different from a recession driven by a drop in demand. Specifically, it is a supply shock triggered by a shutdown of economic activity imposed to prevent the community transmission of the virus.
  • A demand shock resulting from a decline in demand can be reversed or at least mitigated by policies to boost demand, but such measures are impotent in the face of a supply shock like the current one.
  • The coronavirus shock has led to an economic crisis in which businesses—following government recommendations—have fully or partially shut down their operations, resulting in a loss of sales for companies and of wages and jobs for employees. If nothing is done to address this and large numbers of business exits or failures produce a surge in unemployment, Japanese GDP may fall even further, plunging the nation into a full-fledged depression.
  • The government must provide immediate cash assistance to affected businesses and individuals. In particular, a moratorium on taxes and other payments to the government is needed as soon as possible, along with cash compensation for forgone income and business losses.

About the Author

  • Ryoji Kashiwagi

    Senior Researcher

    Financial Market & Innovation Research Department

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