**** An ABC recovery
People discussing whether it is going to be a V, U, L, ... recession. I say neither. Sticking to the alphabet, it will be an ABC recovery.
De-trended (and smoothed) GDP will take the shape in this picture:
People discussing whether it is going to be a V, U, L, ... recession. I say neither. Sticking to the alphabet, it will be an ABC recovery.
De-trended (and smoothed) GDP will take the shape in this picture:
It's already obvious that freezing the economy causes a sharp fall (A). Once lockdown relaxes, surely there'll be a rebound; some of those constrained will go back to work and spend (B). And, full recovery from a deep scarring recession will very likely take some time (C)
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To me, the question on the recession/recovery is not its shape. Rather, the questions are:
-- How deep will A be?
-- How far up will B be?
-- How long between B and C?
An ABC discussion would be better focussed than the VLU debate.
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-- How deep will A be?
-- How far up will B be?
-- How long between B and C?
An ABC discussion would be better focussed than the VLU debate.
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On the depth of A:
- How productively have people been able to work from home?
- How quickly did some sectors adapt to home delivery?
- How effective have policies been at supporting businesses and households?
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- How productively have people been able to work from home?
- How quickly did some sectors adapt to home delivery?
- How effective have policies been at supporting businesses and households?
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On the rebound in B:
- How gradual will the removal of the government lockdown be?
- How quickly will firms and workers that separated rematch?
- How much will the fear of the virus hold back willingness to spend and work?
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- How gradual will the removal of the government lockdown be?
- How quickly will firms and workers that separated rematch?
- How much will the fear of the virus hold back willingness to spend and work?
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On length to C:
- How much productive capacity has been destroyed?
- Will a financial crisis follow?
- Will savings rise so much to create a paradox of thrift?
- How much capital has to reallocate across sectors, or be created anew, to adjust to new economy structure?
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- How much productive capacity has been destroyed?
- Will a financial crisis follow?
- Will savings rise so much to create a paradox of thrift?
- How much capital has to reallocate across sectors, or be created anew, to adjust to new economy structure?
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Econ can contribute much to these questions. But in every one of them epidemiological forecasts of contagion, prevalence, fatality, containment, ... are central. Given uncertainty on these, econ forecasts have to be very uncertain. No matter how eloquent the forecaster may be
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