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Habits and demand changes after COVID-19

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Mauro Bambi discusses how a transitory lockdown of a sector of the economy may have changed our habits and, therefore, altered the goods’ demand permanently.

Image courtesy of interviewee. March 25, 2024

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This video video discusses the significance of habits in determining consumption behavior, particularly in the context of economics and psychology. It explores how past consumption influences current habits, preferences, and utility. The author examines the impact of environmental factors on habits, using addiction as an example, highlighting how cues in familiar environments can trigger consumption.

This video video then introduces the context of the COVID-19 pandemic and its effects on consumption patterns due to lockdowns and social distancing, suggesting that these changes in habits may persist post-lockdown, impacting current consumption behaviors. The author aims to investigate the connections between habits, changing consumption patterns, and prices.

Three literature streams are identified:
1. The relationship of pandemic dynamics with macroeconomic variables.
2. Optimal lockdown policy design considering demographic and disease factors.
3. The pandemic’s impact on multi-sector economics.

The author's own research focuses on a two-sector economy analyzing how changing habits during lockdown affected consumption patterns and aggregate variables after the pandemic. They discuss the mechanisms, including the "cession effect" and "susceptibility effect," and how these relate to changes in the demand for goods.

Key findings suggest that the length of the lockdown influences consumption behaviors and may lead to changes in demand and prices post-lockdown. The paper concludes with implications for policy and future research, advocating for a more nuanced modeling of lockdown impacts on the economy. The overall aim is to underscore how shifts in habits during the pandemic could have lasting effects on consumer behavior.

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X-TIMESTAMP-MAP:LOCAL=00:00:00.000,MPEGTS=900000

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As we know, habits,

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are mean quite, relevant, okay?

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In, in economics.

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So there is quite a, a large literature both in economics

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and, the psychological literature that basically observe

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how habits matter in determining consumption behavior.

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And, so, of course, I mean, what,

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what, what the habits means.

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So the idea of a habit is that basically,

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habits are a form overpass consumption behavior.

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And the idea is the how these consumption,

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past consumption behavior influence,

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current consumption behavior.

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And, in addition, I mean, the idea is also

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that the current consumption behavior, as well

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as past consumption behavior influence our preferences

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or our utility, in the context of habit.

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Uh, another interest interesting, feature is,

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the problem that, there is a literature

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that has observed, how,

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environmental factors matter in the determination of habits.

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Um, and I mean, the classical example here is, for example,

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the one of a person who is addicted, for example,

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to alcohol or to some other substance,

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and how this person, receive a cues

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that trigger further consumption

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of these alcohol substances, from the location

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where they recently consumed it.

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So, if you go back in the same place where you have abuse,

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for example, then your incentive to do it again is higher.

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So, so then, taking into account, all

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of this consideration, the idea of,

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the paper is, the following.

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So, there's been a pandemic, okay?

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So with lockdown social distancing,

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and this is clearly a change in context,

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the change on environment.

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So, based on what I said

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before, then the idea is, okay, this change

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of environmental context

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that surely have had an impact on habits,

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and then how these change in habits,

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may have basically in used a change in consumption

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pattern, okay?

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Not just during the lockdown, but also after the lockdown.

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And of course, I mean, during the lockdown, I mean,

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we know very well that our consumption behavior has changed.

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For example, some habits like, online shopping

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or, streaming services,

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or even, our, dietary habits has changed, okay?

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Quite significantly. And then the question is,

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to understand whether this change have also had some kind

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of impact, in our current consumption behavior once,

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the lockdown and belief

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and the pandemic basically, has become,

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endemic to the society.

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Okay? Um, okay.

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So, the, then, I mean, the aim here is

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therefore to, try to understand,

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several things.

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Okay? So the first thing that we are trying

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to understand is the following, connection

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between habits,

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changing consumption pattern, and changing prices.

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Uh, another challenge that we are interested in is

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to understand how this possible, mechanism can be,

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influenced by, a lockdown, for example,

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if, a longer lockdown

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may have had some different impact, okay?

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On this channel, which link ahead consumption

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pattern and prices.

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And finally, how, in this context, okay, try

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to understand that this connection between habit,

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consumption pattern

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and prices, how, some permanent changes in the economy,

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for example, like in the labor composition,

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may have had, also, a role, okay?

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In, in, in, in these, in these mechanics

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that we, we, we aim to unveil in our article, in term

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of the macroeconomic literature,

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we can identify three streams of literature.

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So the first, is, was developed by,

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Guen and other in 2014.

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So pre, pandemic, okay? Uh, pre CVID 19 pandemic.

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And, so the authors,

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and what they tried to do, was they fall.

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So they, they consider a very,

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well-known modern macroeconomics.

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So basically in a classical growth model, okay?

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And in this model, what they did was to embed,

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the dynamic of a pandemic.

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So basically, they added the, if you like, an equation

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which, describe, evolution of a pandemic.

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And then they ask themselves how they aggregate variable,

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change, okay?

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Because of the addiction

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of these logistic equation describing

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the, the pandemic dynamic.

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Um, and, both in the long run and in the short run.

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So, and what they found, quite interesting is that,

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so the economy, have basically now,

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two steady states or two long run

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equilibrium, equilibrium.

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So one is,

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where the pandemic has become endemic,

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and the other one where is eradicated.

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And, in both cases, they started

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how an economy looks like in term of consumption,

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pattern output investment, and so on

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and so forth, in the two, setting or cases.

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So, this is a clear, it was very interesting,

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paper, actually a lot of, auto of views, these,

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these semial contribution,

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and adopted it, in the case of the COVID-19 pandemic.

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But, I mean, as you, as you can understand, I mean,

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this was very relevant during the pandemic, okay?

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When we, we didn't know whether the pandemic would have

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been, eventually become endemic or eradicated.

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Okay? So,

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therefore, I mean, perhaps now, let's say,

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is an approach which is a bit less important,

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because now we know

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that the pandemic has become endemic, okay?

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So while analyzing the case, for example,

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where the pandemic, stayed, has been eradicated,

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if it is not what happened in reality.

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So, a second stream, of,

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the macroeconomic literature instead is about,

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optimal lockdown policy.

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So, here one, I mean, there is many contribution.

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One of the main, contribution is, var

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and other in economic review in cited 2020.

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And the focus in this, stream

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of literature is in designing an optimal lockdown.

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Okay? So again, the emphasis, in is,

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in this paper is on, demographic factors

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and, disease characteristics.

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And based on that, I try to find, the optimal lockdown,

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where optimal here means, a lockdown, which,

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on one hand, pre, I mean, on one hand,

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try to reduce, okay, the economic impact in term

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of, for example, GDP contraction and so on,

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and support of inducing this lockdown.

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But at the same time, I mean,

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preserve the health and the safety of the population.

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Okay? So then it's this kind of trade off.

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And again, as you can, see, I mean,

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this is very interesting,

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but again, was something super relevant during the pandemic

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and much less, now

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that the pandemic has become endemic to the society.

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So finally, there is the three, the furthest theme

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of literature, which is, about the, impact

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of COVID-19 in multi-sector accords.

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And, here again, there are several contribution.

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One of the main contribution is, Gabriel

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and other in economic review, 2000, two, 2020.

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Uh, and, here the approach is completely different.

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So here the idea is that's okay.

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Uh, we know that, the pandemic has become endemic, okay?

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So we don't want to put in this model,

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anything describing the pandemic dynamics,

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or, describing, super carefully

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what is an optimal lockdown here is just to say, okay,

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at the end of the day, the pandemic was a negative shock

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to the economy, which imply a contraction of GDP about

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of 30%, with some sector of the economy that,

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wearing shut down completely, okay?

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Because, I mean, they couldn't produce goods

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because I mean, people couldn't go

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and, I mean, buy them, or services.

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And, and then, I mean, the idea is, okay,

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so there has been these, these, negative shock.

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So what happened after this? Okay? What happened?

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Because there was this drastic,

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change in the economy for these, periods.

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So what happens to the economy after?

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And, for example, in the people of, there is a lot

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of emphasis about also, the role of fiscal policy,

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monetary policy, and so on and so forth.

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So, in our paper, so our paper, belong

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to this third stream of literature.

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Um, we, keep aside the fiscal,

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monetary policy implication,

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and instead, we have reached the model, by, try

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to understand the role of habits, okay?

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How the, hey, changing habits during the lockdown may have

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impacted the, the, the,

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the currenting consumption pattern.

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And, other aggregate variable

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after the lockdown, after the pandemic.

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But we study is, a two sector, economy. Okay?

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So there are two sector,

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and, one sector, produce a good,

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which is always, available.

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Okay? So this sector never shut because of the lockdown,

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but the other sector, during the lockdown,

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a shutdown, and the good is no more available.

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So, in this economy, the firms try to,

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maximize their profit,

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and, the, the, the only input of production

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for them in order to produce the good is labeled.

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Uh, then we have on the other side, the houses, okay?

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So the houses in this economy maximize their utility,

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which depend on, the consumption of the two goods

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as well as the habits, okay?

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Because as we said before, past consumption matters and

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therefore have affect the preferences.

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So the consumer, what they also do is to try

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to maximize over time their intertemporal utility subject

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to evolution of these habits, okay?

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And, the fact that they may save

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or borrow, by health, by hold, health

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by holding, for assets.

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So this is, very simply how the economy, looks like.

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So in this context,

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first we studied this economy without any lockdown,

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and then we studied the same economy when,

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we use the lockdown.

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So in the case of, no lockdown,

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what are, what is the key finding?

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So the key finding is that,

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so if we look at empirical evidence,

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there are some empirical evidence which link, the,

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have so that find negative correlation

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between the habits, a relative price of a good,

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in particular, this has been observed, if you look at,

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movie theater

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versus the TV watching, okay?

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So if you look at these two, goods, okay?

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So you may observe that the habits, form over,

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TV watching,

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and relative price of,

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the movie theater are negatively correlated.

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So, and then the question is, can our model,

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very simple model can somehow explain these evidence?

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And in order to do that, what we do, is,

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to, okay, so we study the model,

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and then the answer is yes, but it depends.

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Okay? So,

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and the question is, it depends on what, well,

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in our model, we find the two mechanisms, okay?

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Which, we refer to the cession effect

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and the susceptibility effect.

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So the cession effect basically, tell you,

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the following story that, so, as I consume a good

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and form habits over some good, then, I may have,

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I mean, these habits may basically induce association on the

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consumption of the other good as well.

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So just to give you an example, suppose that,

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during the pandemic, I developed,

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a bad habit of binge watching the poker patrols, okay?

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Serious. Then, after the,

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after the, the, so I was staying there, I mean,

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sitting on the sofa for long hour.

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So after the lockdown, I mean,

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after the, the lockdown, I could again, I mean,

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I discovered that I can go again to the movie to see a,

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a movie or to the cinema to see a movie.

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And we have a movie on the poker patrol, okay?

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So it could be that, I'm so associated

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of sitting there without doing anything,

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just watching a screen that, I have this incentive now

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to go to see again the p patrol at, at the,

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at the, at the movie theater.

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Okay? So then the habit form one good, which is watching,

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the TV series

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of the Paw Patrol may have an effect,

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the decision effect on, on, on, on another good, which is,

13:47.275 --> 13:49.855
the, the, the,

13:49.875 --> 13:53.015
the p patrol movie, the, the other.

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But then we have also another, effect,

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which is the sustainability effect, which basically give,

13:59.205 --> 14:02.205
I mean, tell you simply that if two good,

14:02.225 --> 14:03.925
has a high degree of sustainability,

14:04.035 --> 14:07.525
then an increase in demand of one good may basically imply,

14:07.865 --> 14:11.045
an increase in the demand of the other,

14:11.065 --> 14:12.765
and an increase in price of the other good.

14:13.185 --> 14:16.045
So the first effect is success effect basically imply

14:16.285 --> 14:18.205
reduction in pri in the relative price of the good,

14:18.305 --> 14:19.685
not available during the lockdown.

14:20.225 --> 14:21.965
Uh, the other one in implied

14:22.045 --> 14:23.445
basically an increase in the price.

14:23.825 --> 14:27.125
So then depending on these two, demand

14:27.265 --> 14:31.405
of this two effect, you may observe, a negative

14:31.625 --> 14:33.685
or a positive correlation between habits

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and the price of the good, which is not available during,

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the lockdown.

14:38.715 --> 14:39.925
Okay? Uh,

14:40.785 --> 14:44.865
and then, I mean, it's, so, I, the case

14:44.865 --> 14:47.065
that I was saying before that,

14:47.065 --> 14:50.825
even without the lockdown, this negative correlation

14:50.825 --> 14:52.645
with the relative price of a movie theater,

14:52.985 --> 14:55.685
and they have form over TV watch and can be explained

14:55.685 --> 14:59.045
because, the first effect is a social effect

14:59.265 --> 15:02.525
as a magnitude greater than, the, the, the,

15:02.525 --> 15:04.245
the demand of the sustainability effect.

15:04.745 --> 15:08.725
And therefore, this is what happened then, then,

15:08.875 --> 15:11.965
okay, now that we have found that this to effect how this

15:11.965 --> 15:15.485
to effect has been, reinforced okay,

15:15.505 --> 15:17.845
or change in magnitude due to the lockdown.

15:18.305 --> 15:21.205
And what we observe is that, the length of the lockdown,

15:21.545 --> 15:23.325
as well, or, or as well

15:23.325 --> 15:27.685
as the change in labor composition may have an impact on the

15:27.845 --> 15:28.925
dementia of these two effects.

15:30.195 --> 15:34.575
And, for example, what, we observe is that,

15:35.075 --> 15:38.855
if the lockdown has been sufficiently longer, okay,

15:39.315 --> 15:42.695
and, the succession effect, is, I mean,

15:43.135 --> 15:47.815
dominate this effect, then we may have a falling demand

15:48.185 --> 15:50.815
after the lockdown of the good not available

15:50.955 --> 15:52.215
during the lockdown.

15:52.835 --> 15:55.495
On the other hand, if instead,

15:56.355 --> 15:59.575
we have the stability effect greater than such substation

15:59.575 --> 16:02.655
effect, we may have basically print up demand

16:02.655 --> 16:07.295
of the good not available, during the lockdown,

16:07.705 --> 16:11.095
which once the market reopen imply an increasing prices

16:11.235 --> 16:13.855
and increasing demand of the good, which was not available.

16:14.985 --> 16:18.485
So, and again, this effect depend a lot on, the,

16:18.485 --> 16:20.685
the, the assumption that you also, you are doing in term

16:20.685 --> 16:22.325
of changing labor composition

16:22.945 --> 16:24.525
and the length of the lockdown.

16:25.125 --> 16:27.205
I think that the, the, the paper is interesting

16:27.205 --> 16:31.485
because it, it identifies a clear, mechanism

16:31.505 --> 16:34.405
or channel through which, you may study

16:34.545 --> 16:37.365
how habits change the consumption patterns.

16:37.425 --> 16:39.765
And by changing consumption patterns may change

16:39.825 --> 16:40.885
the relative prices.

16:41.155 --> 16:42.405
Okay? So,

16:42.705 --> 16:47.655
and, of course, this, I mean, it's,

16:47.655 --> 16:51.295
this, help us to understand,

16:51.365 --> 16:54.215
what happened after, the, the pandemic.

16:54.325 --> 16:57.335
Okay? So if you observe some changes, in consumption,

16:57.915 --> 17:01.095
then it could partially

17:01.115 --> 17:02.615
depend on this change in habits.

17:03.585 --> 17:07.125
Uh, another things that, it may be relevant is that,

17:07.185 --> 17:10.365
although we are not explicitly doing, in,

17:10.365 --> 17:13.765
in the article, but, so if in a context like this,

17:13.825 --> 17:16.085
you add, for example, fixed cost in production,

17:16.625 --> 17:19.485
and some, I mean, very mild form of

17:19.565 --> 17:22.805
as symmetric information, I mean,

17:22.935 --> 17:26.925
these change in habits, may basically imply

17:26.985 --> 17:30.445
for some sector of the economy to permanently close

17:30.495 --> 17:31.565
after the lockdown,

17:31.875 --> 17:35.565
because they don't find the, the, the, the no more,

17:35.585 --> 17:38.045
the, because it's no more profitable for them

17:38.585 --> 17:41.285
to remain active, because, I mean, you will be happy

17:41.305 --> 17:43.725
to consume at least good, only if, for example,

17:43.825 --> 17:46.605
the price has been, sufficiently reduced.

17:46.795 --> 17:51.485
Okay? So if you think, again, to the story of the p patrols,

17:51.565 --> 17:53.125
I mean, I could go,

17:53.185 --> 17:55.845
if I'm very associated over, I mean, sitting

17:55.945 --> 17:57.565
And looking at the screen, I could

17:57.565 --> 17:58.645
Still go to the cinema,

17:59.185 --> 18:01.605
but only if the price of the ticket is very low.

18:02.065 --> 18:04.365
But if the price of the ticket doesn't go, so, I mean,

18:04.365 --> 18:07.525
doesn't reduce enough, I will not go.

18:08.105 --> 18:10.925
But if you have a fixed cost in production, I mean,

18:10.985 --> 18:13.485
the, the, the, the, the genome may have some rigidities

18:13.485 --> 18:15.165
that they cannot go too much down.

18:15.705 --> 18:17.085
And then, I mean, the, the

18:17.525 --> 18:19.525
Possible result Is that, I mean therefore

18:19.785 --> 18:20.785
To, to, to Close.

18:20.795 --> 18:24.325
Okay? So, and then since these habits, I mean, as,

18:24.345 --> 18:28.685
as you can, perhaps, I mean, guess is basically,

18:28.945 --> 18:32.605
over time, I mean, you, you, you may come back to,

18:33.205 --> 18:35.205
I mean, even if it may take a long time,

18:35.345 --> 18:36.845
you may come back eventually

18:36.845 --> 18:39.005
To the Pre pandemic level. Uh,

18:39.485 --> 18:41.005
A possible policy implication

18:41.065 --> 18:44.325
Is that, you should sustain after the lockdown.

18:44.545 --> 18:47.565
Uh, those sector data, may have some

18:47.845 --> 18:49.165
Difficulties because in the long run,

18:49.485 --> 18:52.525
Actually they could become profitable again in just a

18:52.525 --> 18:53.685
matter of the short term.

18:54.755 --> 18:58.855
So, this is a, a first, a first,

18:59.195 --> 19:01.815
policy implication of, of the paper.

19:02.355 --> 19:06.735
Uh, another one, is probably about, the

19:06.935 --> 19:08.535
Magnitude of the results. Okay? So, because

19:08.925 --> 19:11.415
Okay, here, I mean, this is a theoretical contribution,

19:11.435 --> 19:15.455
but you could argue that this, this, I mean, effect are

19:15.455 --> 19:16.575
Very, very small. So we

19:16.575 --> 19:19.415
Try with some, numerical analysis

19:19.415 --> 19:23.615
to understand, how much, for example,

19:23.915 --> 19:27.335
a, in the case of an

19:27.455 --> 19:30.055
Increase in demand, how much these increase in

19:30.055 --> 19:32.855
Demand, is quantitatively speaking.

19:32.915 --> 19:35.535
So it's very Small, or I mean, it's, is meaningful.

19:35.835 --> 19:38.735
So, and we find that for a reasonable,

19:38.735 --> 19:42.655
for a reasonable selection of the parameter values, that the

19:42.655 --> 19:44.655
Demand increase is around 5%.

19:44.925 --> 19:47.455
Okay? And that there is a, a correspondence,

19:47.455 --> 19:49.135
Sharp increase in Prices, okay?

19:49.195 --> 19:53.095
In the case where, the, the, the, substative effect

19:53.095 --> 19:54.535
that dominated this succession effect.

19:54.555 --> 19:56.415
So not small, so its not

19:56.415 --> 19:57.615
Huge, but there, I mean,

19:57.635 --> 19:59.615
it can explain at least partially,

19:59.995 --> 20:03.455
Uh, these, change in demand after the lockdown.

20:05.045 --> 20:07.705
And, in term of future research, perhaps, I mean,

20:07.725 --> 20:10.025
one things that it could be

20:10.025 --> 20:11.865
Done in the future is to,

20:11.865 --> 20:14.545
Perhaps modeling the lockdown in a more,

20:14.545 --> 20:16.705
rich way than the way which we have actually,

20:16.885 --> 20:17.905
needed.

20:17.905 --> 20:21.305
Because, as I was saying, I mean, we

20:21.305 --> 20:22.465
Were very parsimonious

20:22.485 --> 20:25.185
In the description of the lockdown okay, to keep things.

20:25.885 --> 20:27.145
But of course, I mean, future

20:27.385 --> 20:30.625
Research could, make the lockdown much more rich.

20:30.655 --> 20:32.105
Okay? The description of the lockdown.

00:00 - As we know, habits, are mean quite, relevant, okay? In, in economics. So there is quite a, a large literature both in economics and, the psychological literature that basically observe how habits matter in determining consumption behavior.

00:18 - And, so, of course, I mean, what, what, what the habits means. So the idea of a habit is that basically, habits are a form overpass consumption behavior. And the idea is the how these consumption, past consumption behavior influence, current consumption behavior. And, in addition, I mean, the idea is also that the current consumption behavior, as well as past consumption behavior influence our preferences

00:46 - or our utility, in the context of habit. another interest interesting, feature is, the problem that, there is a literature that has observed, how, environmental factors matter in the determination of habits. and I mean, the classical example here is, for example, the one of a person who is addicted, for example, to alcohol or to some other substance, and how this person, receive a cues that trigger further consumption

01:23 - of these alcohol substances, from the location where they recently consumed it. So, if you go back in the same place where you have abuse, for example, then your incentive to do it again is higher. So, so then, taking into account, all of this consideration, the idea of, the paper is, the following. So, there's been a pandemic, okay? So with lockdown social distancing, and this is clearly a change in context,

01:53 - the change on environment. So, based on what I said before, then the idea is, okay, this change of environmental context that surely have had an impact on habits, and then how these change in habits, may have basically in used a change in consumption pattern, okay? Not just during the lockdown, but also after the lockdown. And of course, I mean, during the lockdown, I mean,

02:18 - we know very well that our consumption behavior has changed. For example, some habits like, online shopping or, streaming services, or even, our, dietary habits has changed, okay? Quite significantly. And then the question is, to understand whether this change have also had some kind of impact, in our current consumption behavior once, the lockdown and belief and the pandemic basically, has become, endemic to the society.

02:50 - Okay? okay. So, the, then, I mean, the aim here is therefore to, try to understand, several things. Okay? So the first thing that we are trying to understand is the following, connection between habits, changing consumption pattern, and changing prices. another challenge that we are interested in is to understand how this possible, mechanism can be,

03:21 - influenced by, a lockdown, for example, if, a longer lockdown may have had some different impact, okay? On this channel, which link ahead consumption pattern and prices. And finally, how, in this context, okay, try to understand that this connection between habit, consumption pattern and prices, how, some permanent changes in the economy, for example, like in the labor composition,

03:51 - may have had, also, a role, okay? In, in, in, in these, in these mechanics that we, we, we aim to unveil in our article, in term of the macroeconomic literature, we can identify three streams of literature. So the first, is, was developed by, Guen and other in 2014. So pre, pandemic, okay? pre CVID 19 pandemic. And, so the authors, and what they tried to do, was they fall.

04:25 - So they, they consider a very, well-known modern macroeconomics. So basically in a classical growth model, okay? And in this model, what they did was to embed, the dynamic of a pandemic. So basically, they added the, if you like, an equation which, describe, evolution of a pandemic. And then they ask themselves how they aggregate variable, change, okay? Because of the addiction

04:53 - of these logistic equation describing the, the pandemic dynamic. and, both in the long run and in the short run. So, and what they found, quite interesting is that, so the economy, have basically now, two steady states or two long run equilibrium, equilibrium. So one is, where the pandemic has become endemic, and the other one where is eradicated.

05:22 - And, in both cases, they started how an economy looks like in term of consumption, pattern output investment, and so on and so forth, in the two, setting or cases. So, this is a clear, it was very interesting, paper, actually a lot of, auto of views, these, these semial contribution, and adopted it, in the case of the COVID-19 pandemic. But, I mean, as you, as you can understand, I mean, this was very relevant during the pandemic, okay?

05:55 - When we, we didn't know whether the pandemic would have been, eventually become endemic or eradicated. Okay? So, therefore, I mean, perhaps now, let's say, is an approach which is a bit less important, because now we know that the pandemic has become endemic, okay? So while analyzing the case, for example, where the pandemic, stayed, has been eradicated, if it is not what happened in reality.

06:24 - So, a second stream, of, the macroeconomic literature instead is about, optimal lockdown policy. So, here one, I mean, there is many contribution. One of the main, contribution is, var and other in economic review in cited 2020. And the focus in this, stream of literature is in designing an optimal lockdown. Okay? So again, the emphasis, in is, in this paper is on, demographic factors

06:56 - and, disease characteristics. And based on that, I try to find, the optimal lockdown, where optimal here means, a lockdown, which, on one hand, pre, I mean, on one hand, try to reduce, okay, the economic impact in term of, for example, GDP contraction and so on, and support of inducing this lockdown. But at the same time, I mean, preserve the health and the safety of the population. Okay? So then it's this kind of trade off.

07:33 - And again, as you can, see, I mean, this is very interesting, but again, was something super relevant during the pandemic and much less, now that the pandemic has become endemic to the society. So finally, there is the three, the furthest theme of literature, which is, about the, impact of COVID-19 in multi-sector accords. And, here again, there are several contribution. One of the main contribution is, Gabriel

08:02 - and other in economic review, 2000, two, 2020. and, here the approach is completely different. So here the idea is that's okay. we know that, the pandemic has become endemic, okay? So we don't want to put in this model, anything describing the pandemic dynamics, or, describing, super carefully what is an optimal lockdown here is just to say, okay, at the end of the day, the pandemic was a negative shock to the economy, which imply a contraction of GDP about

08:38 - of 30%, with some sector of the economy that, wearing shut down completely, okay? Because, I mean, they couldn't produce goods because I mean, people couldn't go and, I mean, buy them, or services. And, and then, I mean, the idea is, okay, so there has been these, these, negative shock. So what happened after this? Okay? What happened? Because there was this drastic, change in the economy for these, periods.

09:07 - So what happens to the economy after? And, for example, in the people of, there is a lot of emphasis about also, the role of fiscal policy, monetary policy, and so on and so forth. So, in our paper, so our paper, belong to this third stream of literature. we, keep aside the fiscal, monetary policy implication, and instead, we have reached the model, by, try to understand the role of habits, okay?

09:38 - How the, hey, changing habits during the lockdown may have impacted the, the, the, the currenting consumption pattern. And, other aggregate variable after the lockdown, after the pandemic. But we study is, a two sector, economy. Okay? So there are two sector, and, one sector, produce a good, which is always, available. Okay? So this sector never shut because of the lockdown,

10:07 - but the other sector, during the lockdown, a shutdown, and the good is no more available. So, in this economy, the firms try to, maximize their profit, and, the, the, the only input of production for them in order to produce the good is labeled. then we have on the other side, the houses, okay? So the houses in this economy maximize their utility, which depend on, the consumption of the two goods as well as the habits, okay?

10:37 - Because as we said before, past consumption matters and therefore have affect the preferences. So the consumer, what they also do is to try to maximize over time their intertemporal utility subject to evolution of these habits, okay? And, the fact that they may save or borrow, by health, by hold, health by holding, for assets. So this is, very simply how the economy, looks like. So in this context,

11:08 - first we studied this economy without any lockdown, and then we studied the same economy when, we use the lockdown. So in the case of, no lockdown, what are, what is the key finding? So the key finding is that, so if we look at empirical evidence, there are some empirical evidence which link, the, have so that find negative correlation between the habits, a relative price of a good,

11:34 - in particular, this has been observed, if you look at, movie theater versus the TV watching, okay? So if you look at these two, goods, okay? So you may observe that the habits, form over, TV watching, and relative price of, the movie theater are negatively correlated. So, and then the question is, can our model, very simple model can somehow explain these evidence?

12:04 - And in order to do that, what we do, is, to, okay, so we study the model, and then the answer is yes, but it depends. Okay? So, and the question is, it depends on what, well, in our model, we find the two mechanisms, okay? Which, we refer to the cession effect and the susceptibility effect. So the cession effect basically, tell you, the following story that, so, as I consume a good

12:35 - and form habits over some good, then, I may have, I mean, these habits may basically induce association on the consumption of the other good as well. So just to give you an example, suppose that, during the pandemic, I developed, a bad habit of binge watching the poker patrols, okay? Serious. Then, after the, after the, the, so I was staying there, I mean, sitting on the sofa for long hour. So after the lockdown, I mean,

13:07 - after the, the lockdown, I could again, I mean, I discovered that I can go again to the movie to see a, a movie or to the cinema to see a movie. And we have a movie on the poker patrol, okay? So it could be that, I'm so associated of sitting there without doing anything, just watching a screen that, I have this incentive now to go to see again the p patrol at, at the, at the, at the movie theater. Okay? So then the habit form one good, which is watching,

13:38 - the TV series of the Paw Patrol may have an effect, the decision effect on, on, on, on another good, which is, the, the, the, the p patrol movie, the, the other. But then we have also another, effect, which is the sustainability effect, which basically give, I mean, tell you simply that if two good, has a high degree of sustainability, then an increase in demand of one good may basically imply,

14:07 - an increase in the demand of the other, and an increase in price of the other good. So the first effect is success effect basically imply reduction in pri in the relative price of the good, not available during the lockdown. the other one in implied basically an increase in the price. So then depending on these two, demand of this two effect, you may observe, a negative or a positive correlation between habits

14:34 - and the price of the good, which is not available during, the lockdown. Okay? and then, I mean, it's, so, I, the case that I was saying before that, even without the lockdown, this negative correlation with the relative price of a movie theater, and they have form over TV watch and can be explained because, the first effect is a social effect as a magnitude greater than, the, the, the,

15:02 - the demand of the sustainability effect. And therefore, this is what happened then, then, okay, now that we have found that this to effect how this to effect has been, reinforced okay, or change in magnitude due to the lockdown. And what we observe is that, the length of the lockdown, as well, or, or as well as the change in labor composition may have an impact on the dementia of these two effects. And, for example, what, we observe is that,

15:35 - if the lockdown has been sufficiently longer, okay, and, the succession effect, is, I mean, dominate this effect, then we may have a falling demand after the lockdown of the good not available during the lockdown. On the other hand, if instead, we have the stability effect greater than such substation effect, we may have basically print up demand of the good not available, during the lockdown, which once the market reopen imply an increasing prices

16:11 - and increasing demand of the good, which was not available. So, and again, this effect depend a lot on, the, the, the assumption that you also, you are doing in term of changing labor composition and the length of the lockdown. I think that the, the, the paper is interesting because it, it identifies a clear, mechanism or channel through which, you may study how habits change the consumption patterns. And by changing consumption patterns may change

16:39 - the relative prices. Okay? So, and, of course, this, I mean, it's, this, help us to understand, what happened after, the, the pandemic. Okay? So if you observe some changes, in consumption, then it could partially depend on this change in habits. another things that, it may be relevant is that, although we are not explicitly doing, in,

17:10 - in the article, but, so if in a context like this, you add, for example, fixed cost in production, and some, I mean, very mild form of as symmetric information, I mean, these change in habits, may basically imply for some sector of the economy to permanently close after the lockdown, because they don't find the, the, the, the no more, the, because it's no more profitable for them to remain active, because, I mean, you will be happy

17:41 - to consume at least good, only if, for example, the price has been, sufficiently reduced. Okay? So if you think, again, to the story of the p patrols, I mean, I could go, if I'm very associated over, I mean, sitting And looking at the screen, I could Still go to the cinema, but only if the price of the ticket is very low. But if the price of the ticket doesn't go, so, I mean, doesn't reduce enough, I will not go.

18:08 - But if you have a fixed cost in production, I mean, the, the, the, the, the genome may have some rigidities that they cannot go too much down. And then, I mean, the, the Possible result Is that, I mean therefore To, to, to Close. Okay? So, and then since these habits, I mean, as, as you can, perhaps, I mean, guess is basically, over time, I mean, you, you, you may come back to, I mean, even if it may take a long time,

18:35 - you may come back eventually To the Pre pandemic level. A possible policy implication Is that, you should sustain after the lockdown. those sector data, may have some Difficulties because in the long run, Actually they could become profitable again in just a matter of the short term. So, this is a, a first, a first, policy implication of, of the paper.

19:02 - another one, is probably about, the Magnitude of the results. Okay? So, because Okay, here, I mean, this is a theoretical contribution, but you could argue that this, this, I mean, effect are Very, very small. So we Try with some, numerical analysis to understand, how much, for example, a, in the case of an Increase in demand, how much these increase in Demand, is quantitatively speaking.

19:32 - So it's very Small, or I mean, it's, is meaningful. So, and we find that for a reasonable, for a reasonable selection of the parameter values, that the Demand increase is around 5%. Okay? And that there is a, a correspondence, Sharp increase in Prices, okay? In the case where, the, the, the, substative effect that dominated this succession effect. So not small, so its not Huge, but there, I mean,

19:57 - it can explain at least partially, these, change in demand after the lockdown. And, in term of future research, perhaps, I mean, one things that it could be Done in the future is to, Perhaps modeling the lockdown in a more, rich way than the way which we have actually, needed. Because, as I was saying, I mean, we Were very parsimonious

20:22 - In the description of the lockdown okay, to keep things. But of course, I mean, future Research could, make the lockdown much more rich. Okay? The description of the lockdown.

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