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The Macroeconomics of Epidemics

Martin Eichenbaum, Sergio Rebelo and Mathias Trabandt

No 26882, NBER Working Papers from National Bureau of Economic Research, Inc

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: 2020-03
New Economics Papers: this item is included in nep-dem, nep-dge, nep-mac and nep-pke
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Citations: View citations in EconPapers (669)

Published as Martin S Eichenbaum & Sergio Rebelo & Mathias Trabandt & Ralph Koijen, 2021. "The Macroeconomics of Epidemics," The Review of Financial Studies, vol 34(11), pages 5149-5187.

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Journal Article: The Macroeconomics of Epidemics (2021) Downloads
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