Checking the Path Towards Recovery from the COVID-19 Isolation Response

Finn Kydland and Enrique Martínez García ()

No 384, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: This paper examines the impact of the behavioral changes and governments' responses to the spread of the COVID-19 pandemic using a unique dataset of daily private forecasters' expectations on a sample of 32 emerging and advanced economies from January 1 till April 13, 2020. We document three important lessons from the data: First, there is evidence of a relation between the stringency of the policy interventions and the health outcomes consistent with slowing down the spread of the pandemic. Second, we find robust evidence that private forecasters have come to anticipate a sizeable contraction in economic activity followed by a check mark recovery as a result of the governments' increasingly stringent response. The evidence suggests also that workplace restrictions have further contributed to the downturn and to the subsequent sluggish recovery—opening up the question about the costs of tighter work restrictions. Finally, we argue inflation expectations have not changed significantly so far. Through the lens of the neoclassical growth model, these changes in macro expectations can result from the resulting work disruptions and the potential productivity slowdown from the gradual de-escalation of the confinement.

Keywords: COVID-19; Macro Expectations; Flattening the Curve; Policy Response Stringency; Google Mobility (search for similar items in EconPapers)
JEL-codes: C23 C83 E30 F62 I18 (search for similar items in EconPapers)
Pages: 34
Date: 2020-05-12
New Economics Papers: this item is included in nep-hea, nep-mac and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:87966

DOI: 10.24149/gwp384

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