The pandemic economic crisis, precautionary behavior, and mobility constraints: an application of the dynamic disequilibrium model with randomness†

Abstract This article analyzes the economic impact of pandemic, providing insights into consequences alternative policies. Our framework focuses on three key features: (i) The coronavirus disease (COVID-19) is a sectoral shock unknown depth and duration affecting some sectors technologies more than others; (ii) there are constraints in shifting resources across sectors; (iii) high level uncertainty about its aftermath, inducing precautionary behavior by agents leading to others facing severe credit constraints. Because macroeconomic externalities, exacerbates downturn, even where COVID-19 does not directly affect consumption or production may face unemployment. Multipliers associated with different government expenditure programs differ markedly. describes policies that can mitigate behavior, reduced Greater wage flexibility lead increased