There are several important differences between the global financial crisis of 2007–08 (GFC) and the coronavirus crisis (CC).

The GFC resulted from financial imbalances, primarily the housing bubble, while the CC was triggered by the external negative shock (the pandemic and the following economic shutdown) that dramatically reduced the labor supply. In other words, the GFC was a financial crisis, a bust phase of the business cycle triggered by a misallocation of resources toward housing and construction sectors, while the CC is a shock to the real economy triggered by the health crisis and the containment measures.

Importantly, the exogenous nature of the CC does not imply that we will see a V-shaped recession (even the central banks do not expect it). There are three reasons for this. First, the fear of coronavirus and social distancing will not disappear overnight, but will stay with us for a certain period, perhaps until an effective medical treatment is developed. Second, there will be a hysteresis effect. It is easy to become unemployed or to go bankrupt, but finding a job or starting a new company might be more difficult (especially given the high ratio between the unemployment benefit and median salary in many states). Third, the monetary and fiscal policies being pursued can hamper the pace of recovery, just as they did in the aftermath of the Great Recession.



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