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From phase transitions to Modern Monetary Theory: A framework for analyzing the pandemic of 2020

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  • Bluford H. Putnam

Abstract

Analyzing the economic impact of the COVID‐19 pandemic of 2020 requires an appreciation that price signals were no longer primary determinants of supply and demand. Economic agents were acting out of health fears, government‐mandated shutdown rules, and dealing with financial distress. The economy had entered a state that was far from equilibrium. Orthodox tools, such as comparative equilibrium analysis, can tell one about state “A” and state “B,” but provide no guidance as to how to analyze the phase transition. We turn to the physics of phase transitions to help us understand what essentially was a network collapse. The analysis is extended to examine whether the initial policy responses were more likely to cushion the blow or to accelerate the eventual economic recovery, which is extended into an examination of Modern Monetary Theory. Finally, we study the behavioral changes induced by the pandemic that are likely to be long‐lasting and impact the pace of the recovery. And we note a variety of data anomalies that are sure to vex empirical researchers as they study the pandemic of 2020.

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  • Bluford H. Putnam, 2021. "From phase transitions to Modern Monetary Theory: A framework for analyzing the pandemic of 2020," Review of Financial Economics, John Wiley & Sons, vol. 39(1), pages 3-19, January.
    • Handle: RePEc:wly:revfec:v:39:y:2021:i:1:p:3-19
    DOI: 10.1002/rfe.1122
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