The Macroeconomics of Epidemics

Rebelo, Sérgio, Martin Eichenbaum and Mathias Trabandt

No 14520, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We extend the canonical epidemiology model to study the interaction between economic decisions and epidemics. Our model implies that people's decision to cut back on consumption and work reduces the severity of the epidemic, as measured by total deaths. These decisions exacerbate the size of the recession caused by the epidemic. 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 U.S.

Keywords: Epidemic; Covid-19; Recessions; Containment policies (search for similar items in EconPapers)
JEL-codes: E1 H0 I1 (search for similar items in EconPapers)
Date: 2020-03
New Economics Papers: this item is included in nep-dem and nep-mac
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Citations: View citations in EconPapers (706)

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Related works:
Journal Article: The Macroeconomics of Epidemics (2021)
Working Paper: The Macroeconomics of Epidemics (2020)
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