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Viral shocks to the world economy

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  • Kholodilin, Konstantin A.
  • Rieth, Malte

Abstract

We construct a global index of epidemic news based on text analysis of newspapers from 17 countries. We apply the index to study the economic consequences of epidemics on the world economy in structural vector autoregressions. Epidemic shocks exert significantly and persistently negative effects on output and prices that last for up to two years. There is no quick recovery and no overshooting. The output losses are permanent. Country studies show that the direct effects are substantially larger than the indirect effects through trade and financial markets. Furthermore, the simultaneous fall of output and prices suggests that demand dominate supply contractions and that monetary and fiscal stimuli are appropriate crisis responses to minimize permanent output losses.

Suggested Citation

  • Kholodilin, Konstantin A. & Rieth, Malte, 2023. "Viral shocks to the world economy," European Economic Review, Elsevier, vol. 158(C).
    • Handle: RePEc:eee:eecrev:v:158:y:2023:i:c:s0014292123001551
    DOI: 10.1016/j.euroecorev.2023.104526
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    More about this item

    Keywords

    Epidemics; Pandemics; Text analysis; Structural vector autoregressions; Covid-19; World economy;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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