Epidemics in the Neoclassical and New-Keynesian Models

Martin Eichenbaum, Rebelo, Sérgio and Mathias Trabandt

No 14903, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We analyse the e§ects of an epidemic in three standard macroeconomic models. We Önd that the neoclassical model does not rationalize the positive comovement of consumption and investment observed in recessions associated with an epidemic. Intro- ducing monopolistic competition into the neoclassical model remedies this shortcoming even when prices are completely áexible. Finally, sticky prices lead to a larger recession but do not fundamentally alter the predictions of the monopolistic competition model.

Keywords: Epidemic; Comovement; investment; Recession (search for similar items in EconPapers)
JEL-codes: E1 H0 I1 (search for similar items in EconPapers)
Date: 2022-02
New Economics Papers: this item is included in nep-cwa, nep-dem, nep-dge, nep-mac and nep-ore
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Citations: View citations in EconPapers (40)

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