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Macroeconomic Analysis of Policies Addressing Coronavirus Pandemic.
(2020)
Abstract
During last two quarters, active macroeconomic policies have been a significant component of the overall response of the U.S. government to the coronavirus pandemic. An analysis of current government policies addressing this short-term shock and the resulting economic impact would be helpful in developing future policies, should similar circumstances arise down the road. We conjecture that the combination of expansionary macroeconomic policies preceding the coronavirus pandemic likely shifted the level of U.S. aggregate economic output beyond the point of macroeconomic equilibrium with full employment. In other words, the start of the Coronavirus pandemic coincided with the macroeconomic phenomenon known as demand-pull inflation. In such economic conditions the level of aggregate output is much higher than the economy can sustain in the long run, but the overheated economy enjoys all the benefits of higher than natural level of national production and low unemployment in the short term. The following economic shutdown driven by growing worries over the limited hospital capacity, which would have become unable to meet the growing needs of hospitalization by Coronavirus patients, caused a severe shift in the demand for economic output, along with sharp declines in personal consumption, business investments, and exports of goods and service. The $2 trillion economic relief package known as the CARES Act of March 2020 softened the adverse economic impact of this shock to some extent. The observation in this brief suggests that the overheated economy absorbed some of the shock produced by the economic shutdown, therefore limiting the devastating impact of the sharp economic contraction.
Disciplines
Publication Date
November, 2020
DOI
https://dx.doi.org/10.2139/ssrn.3880005
Citation Information
Sedrakyan, Gohar, Macroeconomic Analysis of Policies Addressing Coronavirus Pandemic. (November 5, 2020). Bagwell Center Policy Brief 2020.