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Macroeconomic impacts of the public health response to COVID-19

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  • Eric Kemp-Benedict

    (Stockholm Environment Institute (SE))

Abstract

The economic impact of public health measures to contain the COVID-19 novel coronavirus is a matter of contentious debate. Given the high uncertainties, there is a need for combined epidemiological-macroeconomic scenarios. We present a model in this paper for developing such scenarios. The epidemiological sub-model is a discrete-time matrix implementation of an SEIR model. This approach avoids known problems with the more usual set of continuous-time differential equations. The post-Keynesian macroeconomic sub-model is a stylized representation of the United States economy with three sectors: core, social (most impacted by social distancing), and hospital, which may experience excessive demand. Simulations with the model show the clear superiority of a rigorous testing and contact tracing regime in which infected individuals, symptomatic or not, are isolated. Social distancing leads to an abrupt and deep recession. With expanded unemployment benefits, the drop is shallower. When testing and contact tracing is introduced, social spending can be scaled back and the economy recovers quickly. Ending social distancing without a testing and tracing regime leads to a high death toll and severe economic impacts. Results suggest that social distancing and fiscal stimulus have had their desired effects of reducing the health and economic impacts of the disease.

Suggested Citation

  • Eric Kemp-Benedict, 2020. "Macroeconomic impacts of the public health response to COVID-19," Working Papers PKWP2011, Post Keynesian Economics Society (PKES).
    • Handle: RePEc:pke:wpaper:pkwp2011
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    File URL: https://www.postkeynesian.net/downloads/working-papers/PKWP2011_revis.pdf
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    References listed on IDEAS

    as
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    2. Marc Lavoie, 2014. "Post-Keynesian Economics: New Foundations," Post-Print hal-01343652, HAL.
    3. Alan Kirman, 2014. "Is it rational to have rational expectations?," Mind & Society: Cognitive Studies in Economics and Social Sciences, Springer;Fondazione Rosselli, vol. 13(1), pages 29-48, June.
    4. J. E. King, 2012. "The Microfoundations Delusion," Books, Edward Elgar Publishing, number 14065.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. 42. Selected Data of Coronavirus in Spain, United States, Europe, America and other areas, year 2020: Statistics of Cases and Hospital beds
      by MCG Blogs de Economía in Euro-American Association: World Development on 2020-05-12 09:25:00

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    Cited by:

    1. Chakrabarty, Himadri Shekhar & Roy, Rudra Prosad, 2021. "Pandemic uncertainties and fiscal procyclicality: A dynamic non-linear approach," International Review of Economics & Finance, Elsevier, vol. 72(C), pages 664-671.

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    More about this item

    Keywords

    SARS-CoV-2; coronavirus; COVID-19; macroeconomy; post-Keynesian; SEIR model;
    All these keywords.

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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