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Epidemics in the Neoclassical and New-Keynesian Models

Author

Listed:
  • Rebelo, Sérgio
  • Eichenbaum, Martin
  • Trabandt, Mathias

Abstract

We analyse the e§ects of an epidemic in three standard macroeconomic models. We Önd that the neoclassical model does not rationalize the positive comovement of consumption and investment observed in recessions associated with an epidemic. Intro- ducing monopolistic competition into the neoclassical model remedies this shortcoming even when prices are completely áexible. Finally, sticky prices lead to a larger recession but do not fundamentally alter the predictions of the monopolistic competition model.

Suggested Citation

  • Rebelo, Sérgio & Eichenbaum, Martin & Trabandt, Mathias, 2022. "Epidemics in the Neoclassical and New-Keynesian Models," CEPR Discussion Papers 14903, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:14903
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    References listed on IDEAS

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    1. Teresa Barbieri & Gaetano Basso & Sergio Scicchitano, 2022. "Italian Workers at Risk During the COVID-19 Epidemic," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 8(1), pages 175-195, March.
    2. Viscusi, W Kip & Aldy, Joseph E, 2003. "The Value of a Statistical Life: A Critical Review of Market Estimates throughout the World," Journal of Risk and Uncertainty, Springer, vol. 27(1), pages 5-76, August.
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    4. Sumedha Gupta & Kosali I. Simon & Coady Wing, 2020. "Mandated and Voluntary Social Distancing During The COVID-19 Epidemic: A Review," NBER Working Papers 28139, National Bureau of Economic Research, Inc.
    5. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    6. Faria-e-Castro, Miguel, 2021. "Fiscal policy during a pandemic," Journal of Economic Dynamics and Control, Elsevier, vol. 125(C).
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Epidemic; Comovement; investment; Recession;
    All these keywords.

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • I1 - Health, Education, and Welfare - - Health
    • H0 - Public Economics - - General

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