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Viral Shocks to the World Economy

Konstantin Kholodilin () and Malte Rieth

No 1861, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: We construct a news-based viral disease index and study the dynamic impact of epidemics on the world economy, using structural vector autoregressions. Epidemic shocks have persistently negative effects, both directly and indirectly, on affected countries and on world output. The shocks lead to a significant fall in global trade, employment, and consumer prices for three quarters, and the losses are permanent. In contrast, retail sales increase. Country studies suggest that the direct effects are four times larger than the indirect effects and that demand-side dominate supply-side contractions. Overall, the findings indicate that expansionary macroeconomic policy is an appropriate crisis response.

Keywords: Coronavirus; Covid 19; text analysis; world economy; structural vector autoregressions; epidemics (search for similar items in EconPapers)
JEL-codes: C32 E32 F44 I18 (search for similar items in EconPapers)
Pages: 21, 13 p.
Date: 2020
New Economics Papers: this item is included in nep-gen, nep-mac and nep-opm
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