Stay At Home! Macroeconomic Effects of Pandemic-Induced Job Separation Shocks

Marcelo Arbex, Michael Batu and Sidney Caetano

No 2002, Working Papers from University of Windsor, Department of Economics

Abstract: We study the macroeconomic effects of a pandemic-induced time-varying job separation rate (JSR). Governments have imposed mandatory stay-at-home orders to reduce the spread of COVID-19. Uncertainties affecting labor market dynamics and the economy are tied to uncertainties surrounding the pandemic and stay-at-home orders. We compare the pandemic-induced JSR with other events that generated large increases in unemployment. We show that the economic effects of unexpected changes in the JSR and the dispersion of these changes depend crucially on the Taylor-rule type adopted by the monetary authority - more severe recessions following JSR shocks under rules with no interest rate smoothing. The generosity of fiscal policy alleviates the negative effects of pandemic-induced job separation shocks.

Keywords: Uncertainty; pandemic; unemployment; business cycles; monetary policy. (search for similar items in EconPapers)
JEL-codes: E24 E31 E32 E52 E58 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2020-09
New Economics Papers: this item is included in nep-dge and nep-mac
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