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Cambridge Centre for Environment, Energy and Natural Resource Governance

New C-EENRG Working Paper 2020-05 A Post-Keynesian approach to modelling the economic effects of Covid-19 and possible recovery plans by Hector Pollitt, Richard Lewney, Bence Kiss-Dobronyi, and Xinru Lin is published today. 

Only twelve years after the global financial crisis, in 2020 the world is again facing economic crisis. This time around, the source of the crisis is the Covid-19 global pandemic, which is affecting the economy differently to the global financial crisis. However, conventional macroeconomic theory and models have once again been found wanting, and economists have again turned to the work of Keynes and more recent Post-Keynesian scholars.

This paper explores why the economics of the pandemic have been so difficult to model. It provides a simulation of the macroeconomic impacts of Covid-19 using the E3ME macro-econometric model. It then describes two potential recovery packages, one of which could be described as ‘green’. The modelling shows that the green recovery package could support the global economy and national labour markets through the recovery period, outperforming an equivalent conventional stimulus package while simultaneously reducing global energy CO2 emissions by 10%.

Read more about our C-EENRG Working Papers series.