Is COVID-19 just a supply shock?

In this post I want to have a bit of a brainstorm around the real shock we are facing with COVID-19 in the country. The key idea I wanted to think about was what type of shock this is – a supply shock, demand shock, or both!

Note that this is a public health crisis – and I recognise that these issues take precedence. But it is still important to think through the economic consequences, at least to understand what they are.

Three compelling tweets make the case for why the focus should be on supply, demand, or on some combination of both:

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Hard and fast on Corona – Morocco style

For the last 8 months I have been teaching at a small liberal arts college in Morocco, Al Akhawayn University.  It is located 1600m high in a small town in the Atlas Mountains, about 60 km from Fez. 

Morocco went into full lockdown on Friday March 20 at 6pm, just after the 80th case was reported. Its reported trajectory has been very similar to that as New Zealand but, after a slow start, the response has been dramatically faster. At the moment there is a ban on all movement in public spaces, schools and universities are closed and education is on-line, non-essential work places are closed, and people have been issued certificates restricting their movement to two shopping trips per week. Borders have been closed for more than a week  – this is for all people, residents and non-residents, in and out. The ban is indefinite, presumably until the government is convinced the threat is controlled. 

I am writing this as the response is clearly different to that in New Zealand, even though both countries are reporting a similar infection experience. You may be interested to know what a preventive lockdown looks like.

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Econ 130 Weeks 1-3: Another perspective – simulating choice

As a way of thinking through the material in the last three weeks of class (Week One, Two, and Three) I’d be keen for you to watch a video from the Primer Youtube channel. Note: I prefer to hyperlink rather than embed the link, so the channel provider gets the ad revenue – it doesn’t always work through WordPress.

This is not compulsory for the course, and will not be assessed. But if you can follow the video, and understand how it relates to the concepts I list below, then you have a great grasp of the content!

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Central banks and large scale asset purchases 

With COVID-19 causing concerns, the RBNZ announced to cut the official cash rate to 0.25% on 16 March.  Given this the OCR is at a low level now- leading to open consideration of other potential “unconventional tools” such as Large Scale Asset Purchases (LSAP) or more commonly termed as Quantitative Easing.  With this now taking place around the world I wanted to discuss these tools.

Upfront I want to note that monetary policy doesn’t do anything to prevent a pandemic – so the main purpose of most of these tools in the short term is to ensure liquidity and avoid the insolvency of firms and financial institutions that would be solvent in the long-term.

But coming out of the pandemic the ability to “boost demand” will be important in the future- so having an idea about how the tools can fill that aim when the time comes is useful.

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ECON 130 Week 3: Consumer theory continued

Hello all!

Last week you learned about indifference curves and budget constraints, and how we could use these concepts to understand individual choice. In the end we were able to build a demand curve that related the quantity demanded by an individual to the price of the product.

This week you will go through more details about the demand curve, and then go into other examples where the budget constraint is not “monetary income at a point in time” but instead related to intertemporal consumption and the work-leisure choice with your scarce time.

These examples are a bit more complex, so if you don’t understand them at first that is normal – just keep going through them to see if you can.

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Keeping track of the business cycle

Business cycles, the phases of expansion and recession in an economy, are a durable feature of macroeconomic data. Typically, quarterly real GDP data is used to determine the phase of the business cycle we are in.

Unfortunately, official New Zealand data on quarterly GDP does not go back very far in time, limiting our ability to understand recessions and expansions. Here I want to share some work I’ve done trying to build a consistent GDP series for New Zealand that goes back until 1947.

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