Abstract
We develop a directed technical change growth model with both public and private sectors. Due to the COVID-19 pandemic, labor productivity and R &D activity in the private sector are considered to have a negative shock. The former shock causes an immediate fall in the private premium, which can be reversed during transition dynamics towards the steady-state. Fiscal policies are materialized in direct and indirect R &D subsidies, and the monetary policies consist of relaxing cash-in-advance restrictions. An appropriate fiscal policy, together or not with monetary policy, can restore the pre-shock situation. Monetary policy is reinforced in the presence of monetary-transaction costs on consumption and of money-in-the-utility function.
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