Modelling the impact of Covid-19 on the UK economy: an application of a disaggregated New-Keynesian model

We set out a framework that can be used to evaluate policies intended to mitigate the economic effects of Covid-19.  In our framework shocks that affect only certain sectors can spill over to other sectors because of input-output linkages and limited income insurance.  We show that policies such as the furlough scheme can prevent the sharp rises in unemployment that might arise in the absence of the scheme, and illustrate how such policies can be evaluated using the framework.