A Note on Hibernation in a Lockdown

Federico Sturzenegger
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Federico Sturzenegger: Universidad de San Andres

No 9, Working Papers from Red Nacional de Investigadores en Economía (RedNIE)

Abstract: Discussion on the optimal fiscal response to lockdowns is just starting. In this note, we make a simple yet apparently ignored point. If a lockdown entails a reduction in the desire for consumption the optimal response is to reduce consumption, a response that I call "hibernation". In this case, attempts to smooth the effect of the lockdown, which has been the almost universal recommendation to deal with Covid-19, leads to welfare losses.

Pages: 15 pages
Date: 2020-04
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