Transitory shocks, persistent effects: towards better suited recovery policies after a financial crisis
Université Sorbonne Paris Nord
Université Paris XIII
Avoiding misinterpretation of economic phenomena
« I believe that the better way to reduce the risk of misinterpreting economic phenomena is not having a unique, good model but rather a variety of models, built on different assumptions, in order to compare the different results and be able to select the model that fits better with the current historical context », continues Bassi. He uses the example of Italy which has lost 20 % of its productive capacity since the financial crisis and where a lot of businesses have closed. « How can we design effective recovery policies if we take for granted that these businesses are going to reopen? We’re designing a method that is more flexible and that doesn’t assume that. » Once this is done, him and his team will move on to designing a new macro-economic model to try and simulate various policies.
Theoretical models are crucial tools in assessing complex phenomena and in trying to mitigate their adverse impacts. That is if they reflect reality faithfully… This project develops along this main concern. Recognising that « the existence of permanent effects after transitory shocks seems to be the norm rather than the exception », Bassi’s project naturally aims to adapt current methods to this newly recognised phenomena, broadening the spectre of how economic recovery is presently approached. At a time when economists are in need of better understanding the effects of different stabilisation policies and the effects of institutions on the business cycle, his findings hold great potential for highly-needed insight.