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Epidemics and Macroeconomic Dynamics

Masashige Hamano () and Munechika Katayama ()

No e162, Working Papers from Tokyo Center for Economic Research

Abstract: We propose a novel SIR-macro model in which virus transmission is uncertain. The model is solved with the perturbation method around a deterministic infectious steady state. Assuming a stationary infection process, a positive infection shock increases infection while reducing consumption and hours worked for susceptible individuals. Further, we estimate our model with the recent US data on the COVID-19 outbreak. Historical decomposition obtained with Bayesian techniques finds that the dis-containment rule that encourages people to work more, as well as infection shock and technology shock, play an important role in characterizing US infection and macroeconomic dynamics.

Pages: 28 pages
Date: 2021-07
New Economics Papers: this item is included in nep-cwa, nep-isf and nep-mac
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