Why is the effect of a lockdown different from that of an oil shock? There is an
Question:
Why is the effect of a lockdown different from that of an oil shock?
There is an important difference between a lockdown and an oil shock. Although a lockdown is typically temporary, not all firms will be able to wait for the lockdown to be lifted and will close. If the lockdown lasts more than a few months, many firms will go out of business. Thus, a lockdown, even if temporary, may reduce the level of potential output permanently. In other words, the effects of a temporary lockdown could be permanent, with long-lasting effects on production and employment in the medium run. But there are other reasons why a temporary lockdown could have permanent effects. Some sectors, think of business travel, may be permanently affected. Teleworking may change people's lives with, possibly, positive effects on the labor force: some people, thanks to teleworking, may be able to work more hours.
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Macroeconomics A European Perspective
ISBN: 9781292360898
4th Edition
Authors: Olivier Blanchard, Alessia Amighini, Francesco Giavazzi