BIS国际清算银行-What-Comes-Next_39页_988kb

Summary of "What Comes Next?" by Daniel M. Rees

Core Content

This paper by Daniel M. Rees examines the economic impact of the Covid-19 crisis and its aftermath using a quantitative multi-industry model. The analysis focuses on the structural changes in economic activity and their implications for recovery trajectories in the United States, the Euro Area (EA), Japan, and China.

Main Viewpoints

• Unprecedented Economic Contraction: The Covid-19 crisis caused an unprecedented global economic contraction, with output in many advanced economies declining by over 10% in the first half of 2020.

• Uneven Recovery: The recovery is expected to be slow and uneven, particularly in customer-facing service industries, which faced significant disruptions due to lockdowns and behavioral changes.

• Persistent Constraints: Some constraints, such as regulatory restrictions and voluntary behavior changes, are likely to persist until a vaccine or effective treatment becomes available.

• Aggregate vs. Industry-Specific Effects: The paper distinguishes between aggregate economic forces and industry-specific shifts, noting that the latter may have long-term implications for output and demand.

• Policy Role: Policymakers have introduced significant stimulus and financial market interventions, which are expected to aid recovery, though the extent of their effectiveness depends on the persistence of structural changes.

• Demand Composition Shifts: Changes in consumer preferences and industry practices may lead to shifts in demand composition, potentially offsetting some of the losses in certain sectors.

• Model Projections: The model suggests that the US, EA, and Japan may face a "98% economy" for several years, with output persistently 2% below pre-crisis levels. China, on the other hand, is projected to recover more quickly, though with some industry-specific lags.

Key Information

Economic Impact of the Crisis

• Output Decline: In the first half of 2020, output in the US, EA, and Japan dropped significantly, while China experienced its first negative GDP growth since the early 1990s.

• Industry Disparities: Customer-facing service industries were hit hardest, with consumption of recreation and transport services declining by 49% and 34% respectively in the US. In contrast, durable goods consumption fell only slightly, and in some cases increased.

Structural Changes

• Model Approach: The paper uses a closed-economy model with a detailed industry structure, incorporating both demand and production-side linkages.

• Household Types:

  • Ricardian households are able to borrow and save, and their utility function includes consumption and labor supply decisions.
  • Hand-to-mouth households are financially constrained, with consumption equal to income.

• Firm Behavior: Firms operate under monopolistic competition, and the model includes nominal rigidities due to price and wage stickiness.

Calibration

• The model is calibrated to match the industrial structures of the US, EA, Japan, and China using input-output tables.

• Key parameters include:

  • Consumption habits (h): 0.7
  • Investment adjustment cost (S'): 3
  • Calvo parameters:
    • Wages (θw): 0.65
    • Sticky prices (θps): 0.7
    • Semi-sticky prices (θpf): 0.5
  • Substitutability parameters:
    • Labour and capital (ψ): 0.95
    • Intermediate products (ψ): 0.5
    • Primary factors and intermediates (φ): 0.6
  • Aggregate labour supply elasticity (ν): 2
  • Capital discount rate (δ): 0.02
  • Substitution elasticity in demand (η): 0.9
  • Substitution elasticity in labor supply (ξ): 2
  • Share of Ricardian households (ωr): 0.75

Crisis Modelling

• The crisis is modelled as a sequence of structural changes, including:

  • Productivity shifts: A proportional change in the mean of $a_{j,t}$.
  • Desired consumption shifts: A shift in the mean of $\xi_{c,t}$.
  • Capital return spreads: A shift in the mean of $\mathcal{M}_t$.
  • Government spending shocks: A transitory shock to government spending.

• The model accounts for both temporary and persistent changes in economic structure, with agents expecting a reversion to the pre-crisis structure at some future point.

Recovery Projections

• Baseline Scenario: If half of the constraints on customer-facing service industries persist until mid-2023, the US, EA, and Japan may face a "98% economy" for several years, with output 2% below pre-crisis levels.

• More Optimistic Scenario: If constraints ease by mid-2021, all four economies could return to their pre-crisis trajectories by early 2022.

• More Pessimistic Scenario: If constraints persist until mid-2025, the US, EA, and Japan could face a "95% economy", with output 5% below pre-crisis levels.

• China's Recovery: China is expected to recover more quickly, with output returning to pre-crisis levels by the end of 2021, although customer-facing service industries may still lag behind by more than 5%.

Conclusion

The paper highlights the importance of structural changes in shaping the post-Covid recovery. While the initial contraction was severe and uneven, the long-term recovery trajectory depends on the persistence of industry-specific constraints and the effectiveness of policy interventions. The model suggests that the US, EA, and Japan may experience prolonged output stagnation, whereas China's recovery, though uneven, is expected to be more robust.