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Macroepidemics and unconventional monetary policy: Coupling macroeconomics and epidemiology in a financial DSGE-SIR framework

Verónica Acurio Vásconez (), Olivier Damette and David W. Shanafelt

Working Papers of BETA from Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg

Abstract: Despite the fact that the current covid-19 pandemic was neither the first nor the last disease to threaten a pandemic, only recently have studies incorporated epidemiology into macroeconomic theory. In our paper, we use a dynamic stochastic general equilibrium (dsge) model with a financial sector to study the economic impacts of epidemics and the potential for unconventional monetary policy to remedy those effects. By coupling a macroeconomic model to a traditional epidemiological model, we are able to evaluate the pathways by which an epidemic affects a national economy. We find that no unconventional monetary policy can completely remove the negative effects of an epidemic crisis, save perhaps an exogenous increase in the shares of claims coming from the Central Bank (“epi loans”). To the best of our knowledge, our paper is the first to incorporate disease dynamics into a dsge-sir model with a financial sector and examine the effects of unconventional monetary policy.

Keywords: New-Keynesian model; dsge; covid-19; epidemiology. (search for similar items in EconPapers)
JEL-codes: D58 E32 E52 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cba, nep-cwa, nep-dge, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:ulp:sbbeta:2021-04

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