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Understanding the COVID Economic Crisis: A Short- Run General Equilibrium Framework

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  • Agnirup Sarkar

Abstract

The article develops a static general equilibrium framework, in terms of which effects of the ongoing COVID-19 pandemic on output and employment of different sectors are analysed for a country like India where there are many regions, interregional migration and a large informal sector. In particular, three pandemic-induced shocks, namely, stoppage of interregional migration, supply bottlenecks and demand shrinkages are considered in a short-run set-up where prices and wages are rigid. It is shown that supply shocks in one region or sector generates binding demand constraints in others. Monetary transfer by the government increases employment and output. JEL Classifications: D5, E2

Suggested Citation

  • Agnirup Sarkar, 2022. "Understanding the COVID Economic Crisis: A Short- Run General Equilibrium Framework," South Asian Journal of Macroeconomics and Public Finance, , vol. 11(2), pages 217-245, December.
    • Handle: RePEc:sae:smppub:v:11:y:2022:i:2:p:217-245
    DOI: 10.1177/22779787221097787
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    References listed on IDEAS

    as
    1. Saki Bigio & Mengbo Zhang & Eduardo Zilberman, 2020. "Transfers vs Credit Policy: Macroeconomic Policy Trade-offs during Covid-19," NBER Working Papers 27118, National Bureau of Economic Research, Inc.
    2. David Baqaee & Emmanuel Farhi, 2022. "Supply and Demand in Disaggregated Keynesian Economies with an Application to the COVID-19 Crisis," American Economic Review, American Economic Association, vol. 112(5), pages 1397-1436, May.
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    Keywords

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    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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