COVID-19 and The Macroeconomic Effects of Costly Disasters

Sydney Ludvigson, Sai Ma and Serena Ng ()

No 26987, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The outbreak of COVID-19 has significantly disrupted the economy. This paper attempts to quantify the macroeconomic impact of costly and deadly disasters in recent US history, and to translate these estimates into an analysis of the likely impact of COVID-19. A costly disaster series is constructed over the sample 1980:1-2020:04 and the dynamic impact of a disaster shock on economic activity and on uncertainty is studied using a VAR. While past natural disasters are local in nature and come and go quickly, COVID-19 is a global, multi-period event. We therefore study the dynamic responses to a sequence of large disaster shocks. Even in a fairly conservative case where COVID-19 is a 5-month shock with its magnitude calibrated by the cost of March 2020 Coronavirus relief packages, the shock is forecast to lead to a cumulative loss in industrial production of 20% and in service sector employment of nearly 39% or 55 million jobs over the next 12 months. For each month that a shock of a given magnitude is prolonged from the base case, heightened macro uncertainty persists for another month.

JEL-codes: E17 I0 I3 (search for similar items in EconPapers)
Date: 2020-04
New Economics Papers: this item is included in nep-mac
Note: AP EFG EH ME PE POL
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Citations: View citations in EconPapers (74)

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