The Macroeconomics of Epidemics

Economic activity and the spread of viral diseases: Evidence from high frequency data

Martin Eichenbaum, Sergio Rebelo and Mathias Trabandt

The Review of Financial Studies, 2021, vol. 34, issue 11, 5149-5187

Abstract: We extend the canonical epidemiology model to study the interaction between economic decisions and epidemics. Our model implies that people cut back on consumption and work to reduce the chances of being infected. These decisions reduce the severity of the epidemic but exacerbate the size of the associated recession. The competitive equilibrium is not socially optimal because infected people do not fully internalize the effect of their economic decisions on the spread of the virus. In our benchmark model, the best simple containment policy increases the severity of the recession but saves roughly half a million lives in the United States.

JEL-codes: E1 H0 I1 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (193)

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Related works:
Working Paper: The Macroeconomics of Epidemics (2020)
Working Paper: The Macroeconomics of Epidemics (2020)
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