Countermeasures against economic crisis from COVID-19 pandemic in China: An analysis of effectiveness and trade-offs

Yawen Liu; Qi Cui; Yu Liu; Jinzhu Zhang; Meifang Zhou; Tariq Ali; Lingyu Yang; Kuishuang Feng; Klaus Hubacek; Xinbei Li

doi:10.1016/j.strueco.2021.09.017

Countermeasures against economic crisis from COVID-19 pandemic in China: An analysis of effectiveness and trade-offs

Struct Chang Econ Dyn. 2021 Dec:59:482-495. doi: 10.1016/j.strueco.2021.09.017. Epub 2021 Sep 30.

Authors

Yawen Liu^{1

2}, Qi Cui³, Yu Liu^{1

2}, Jinzhu Zhang⁴, Meifang Zhou⁵, Tariq Ali⁶, Lingyu Yang^{1

2}, Kuishuang Feng⁷, Klaus Hubacek^{8

9}, Xinbei Li^{1

2}

Affiliations

¹ Institute of Science and Development, Chinese Academy of Sciences, Beijing 100190, China.
² School of Public Policy and Management, University of Chinese Academy of Sciences, Beijing 100049, China.
³ School of Economics and Resource Management, Beijing Normal University, Beijing 100875, China.
⁴ School of Economics and Management, Beijing Forestry University, Beijing 100083, China.
⁵ School of Economics, Beijing Technology and Business University, Beijing 100048, China.
⁶ School of Economics and Management, Jiangxi Agricultural University, Nanchang 330045, China.
⁷ Department of Geographical Sciences, University of Maryland, College Park, MD 20742, USA.
⁸ Energy and Sustainability Research Institute Groningen (ESRIG), University of Groningen, Nijenborg 6, Groningen 9747 AG, the Netherlands.
⁹ International Institute for Applied Systems Analysis, Schlossplatz 1, Laxenburg A-2361, Austria.

Abstract

The effectiveness of different countermeasures to economic crisis from the public health emergency is still inadequately understood. We establish an illustrative scenario, specifying the shocks of COVID-19 pandemic and countermeasures applying a general equilibrium model to analyze the effectiveness of countermeasures with a particular focus on trade-offs in the impacts of monetary and fiscal policies. We find that both monetary and fiscal countermeasures could effectively mitigate the economic damages to GDP and employment. However, they would also produce adverse side-effects such as an increase in consumer price by 1.05% and 0.57%, respectively, and a decline in exports by 2.61% and 1.05%, respectively. Monetary policies would exacerbate the damages to external demand by supply-side shocks of the pandemic, but they are more suitable for mitigating demand-side shocks. While fiscal policies would benefit nearly all producing sectors, monetary policies would mainly affect export-oriented manufacturing sectors negatively.

Keywords: CGE model; COVID-19 pandemic; Countermeasures; Effectiveness; Trade-offs.