Tuesday, April 14, 2020

The COVID-19 crisis - A comparison with the Great Financial Crisis


Is the COVID-19 crisis different than the Great Financial Crisis? Of course, it is although there are some common characteristics. With a large common shock, there will be a one-way flow that creates a liquidity crisis. This liquidity shock is a common component across both crises, but it is important to contrast the two events to understand the transmission through the economy. This is not a regular inventory adjustment recession nor is it a financial recession. It is an economic shock that has spilled over to financial markets. Hence, the response and the adjustment process will be different.

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