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The economic impact of pandemics: real and financial transmission channels

Author

Listed:
  • Hiona Balfoussia

    (Bank of Greece)

  • Heather D. Gibson

    (Bank of Greece)

  • Dimitris Malliaropulos

    (Bank of Greece and University of Piraeus)

  • Dimitris Papageorgiou

    (Bank of Greece)

Abstract
We explore the economic impact of the pandemic and the importance of real and financial sector linkages in this context. We explicitly model the financial sector and trace its role in propagating the pandemic shocks. We find that the pandemic-induced adverse labour supply shock can have sizable effects on the real economy, which are further propagated through the banking sector. Moreover, the contemporaneous pandemic-induced financial shock has financial, but also real effects, including high and protracted firm bankruptcies as well as a more fragile banking sector, thus hindering the financing of the real economy. The duration of the pandemic matters for its impact on the macroeconomy, as both business investment and bank balance sheets take disproportionately longer to recover. Our findings underline the need for well-targeted policy measures to support the real economy and, secondarily, the financial sector during the pandemic and provide justification for several of the policy initiatives recently taken by governments, central banks and regulatory institutions around the world.

Suggested Citation

  • Hiona Balfoussia & Heather D. Gibson & Dimitris Malliaropulos & Dimitris Papageorgiou, 2020. "The economic impact of pandemics: real and financial transmission channels," Working Papers 283, Bank of Greece.
    • Handle: RePEc:bog:wpaper:283
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Theodora Kosma & Pavlos Petroulas & Evangelia Vourvachaki, 2020. "What drives wage differentials in Greece: workplaces or workers?," Economic Bulletin, Bank of Greece, issue 52, pages 69-72, December.
    2. Dimakopoulou, Vasiliki & Economides, George & Philippopoulos, Apostolis, 2022. "The ECB's policy, the Recovery Fund and the importance of trust and fiscal corrections: The case of Greece," Economic Modelling, Elsevier, vol. 112(C).
    3. Nikos Vettas & Konstantinos Peppas & Sophia Stavraki & Michail Vasileiadis, 2020. "The contribution of Industry to the Greek economy: facts and prospects," Economic Bulletin, Bank of Greece, issue 52, pages 29-67, December.
    4. Ioannis Asimakopoulos & Athanasios P. Fassas & Dimitris Malliaropulos, 2020. "Does earnings quality matter? Evidence from the Athens Exchange," Economic Bulletin, Bank of Greece, issue 52, pages 93-112, December.
    5. Constantina Backinezos & Stelios Panagiotou & Evangelia Vourvachaki, 2020. "Multiplier effects by sector: an input-output analysis of the Greek economy," Economic Bulletin, Bank of Greece, issue 52, pages 7-28, December.

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    More about this item

    Keywords

    COVID-19; pandemic; lockdown; social distancing; uncertainty; propagation;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G1 - Financial Economics - - General Financial Markets

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