Economic impact of the COVID-19 epidemic and assessment of green economic recovery policy

ABSTRACT

China is now facing the double pressure of economic downturn brought by COVID-19 and low-carbon transition. The trade-off between short-term economic recovery and long-term green development makes it necessary to design the economic recovery policies under multiple objectives. This paper constructs a new Keynesian dynamic stochastic general equilibrium model, and analyses the process from the outbreak of the COVID-19 epidemic to its economic impact and then to government intervention. The results show that 1) the short-term economic recovery effects of all three economic stimulus policies are remarkable. Under the green economic stimulus policy, GDP grew by 3.3%, 5.3% and 6% in the second, third and fourth quarter of 2020. 2) the green economic stimulus policy reduced economic fluctuations, thus acting as an automatic stabilizer and contributing to a stable economic recovery. 3) in the long run, the green economic stimulus policy is conducive to achieving a green transition of the economy, and avoiding a high carbon lock-in effect in the future. More importantly, it is the preferred path to achieve the 2060 carbon neutrality target. We estimate that each 1 CNY increase in green investment will reduce future abatement costs by 1.5~2.6 CNY. © 2022, Editorial Board of Journal of Systems Engineering Society of China. All right reserved.