The Great Lockdown: information, noise and macroeconomic fluctuations

Michal Brzoza-Brzezina and Grzegorz Wesołowski

No 2021-26, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: This paper argues that not only actual lockdowns can affect economies, but also noisy information about them. We construct a New Keynesian model with imperfect information about how long the lockdown would last. On the one hand, a false signal about the lockdown lowers consumption, investment, employment and output and this effect can be quantitatively sizable. On the other hand, a true information about a lockdown being introduced can also be misinterpreted and hence cause an impact on agents' decisions being quantitatively different from the one desired by the authorities. To the extent that the latter have less noisy information about future lockdowns than the private sector, they can reduce these undesired fluctuations by precisely communicating the lockdown policy. Importantly, under some circumstances only radical improvements in information precision are successful.

Keywords: Covid-19; lockdown; imperfect information; communication (search for similar items in EconPapers)
JEL-codes: D83 E32 E61 E65 I18 J21 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2021
New Economics Papers: this item is included in nep-dge
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Downloads: (external link)
https://www.wne.uw.edu.pl/index.php/download_file/6877/ First version, 2021 (application/pdf)

Related works:
Journal Article: The great lockdown: information, noise, and macroeconomic fluctuations (2023)
Working Paper: The Great Lockdown: information, noise and macroeconomic fluctuations (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:war:wpaper:2021-26

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