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The impact of COVID-19 on corporate fragility in the United Kingdom: Insights from a new calibrated firm-level Corporate Sector Agent-Based (CAB) Model

Covid-19 and the associated restrictions on interaction have led to an unprecedented shock to activity and firms’ balance sheets. To assess the impact, this paper applies a new large-scale firm-level simulation model calibrated to the United Kingdom (UK). The paper specifically examines the Coronavirus Job Retention Scheme (CJRS) furlough program and a credit guarantee.

The Corporate Sector Agent-Based (CAB) Model (Hillman, Barnes, Wharf and MacDonald, 2021) takes into account: heterogeneity across firms; interactions between firms across a realistic customer-supplier network; and rule-of-thumb behaviour by firms and bankruptcy constraints. The model amplifies the effect of shocks and generates substantial persistence and overshooting, as well as displaying a number of non-linearities. The CAB uses a data-rich approach based on ORBIS firm-level data and the OECD Input-Output tables. Simulations in this paper are calibrated to the observed path of UK output in 2020.

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Keywords: short-time working schemes, credit guarantees, bankruptcy, network analysis, input-output analysis, firm dynamics, financial stability, firm-level data, Covid-19, agent-based modelling
JEL: D21: Microeconomics / Production and Organizations / Firm Behavior: Theory; D57: Microeconomics / General Equilibrium and Disequilibrium / General Equilibrium and Disequilibrium: Input-Output Tables and Analysis; D22: Microeconomics / Production and Organizations / Firm Behavior: Empirical Analysis; E27: Macroeconomics and Monetary Economics / Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy / Macroeconomics: Consumption, Saving, Production, Employment, and Investment: Forecasting and Simulation: Models and Applications; D85: Microeconomics / Information, Knowledge, and Uncertainty / Network Formation and Analysis: Theory; G33: Financial Economics / Corporate Finance and Governance / Bankruptcy; Liquidation
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Author(s)
Sebastian Barnes, Robert Hillman, George Wharf and Duncan MacDonald

13 Jul 2021

32 pages

No. 1674

https://doi.org/10.1787/b6805eed-en

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