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Omar LICANDRO (University of Nottingham), “Switching-Track after the Great Recession”

September 27, 2021 @ 12:15 pm - 1:30 pm

The Macroeconomics Seminar: 
Time: 12:15 pm – 13:30 pm
Date: 27th of September  2021
by zoom

Omar LICANDRO (University of Nottingham), “Switching-Track after the Great Recession”

Abstract : We propose a theoretical framework to reconcile episodes of V-shaped and L-shaped recovery, encompassing the behaviour of the U.S. economy before and after the Great Recession. In a DSGE model with endogenous growth, negative demand shocks destroy productive capacity, moving GDP to a lower trajectory. A Taylor rule policy designed to reduce the output gap can  counterbalance shocks, preventing the destruction of economic capacity and inducing V-shaped recoveries in line with past episodes. However, when shocks are deep and persistent enough potential output measures get revised down (switching-track), weakening the recovering role of monetary policy, and inducing an L-shaped recovery.

Joint work with : Francesca VINCI (European Central Bank)