SMEs and the macroeconomic response to Covid-19

We propose to study the effects of lockdown and other UK government policy responses on small and medium enterprises (SMEs). Our model will incorporate SMEs into a general equilibrium model of the UK economy, allowing us to understand important spillover effects of policies directed towards SMEs on wider economic outcomes, including earnings and employment. The particular advantage of our approach is that it permits analysis of the welfare of firm owners as well as the effects of government policies on the underlying factors determining firms' ability to borrow. Our approach also permits analysis of the conditions under which firms' financing and business decisions contribute to increases in wider financial instability, and how policies can be designed in a way that reduces the incentives for firms inadvertently to increase financial instability and exacerbate the effects of crises.