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Impacts of the Substitutability of Consumption on Infection Dynamics

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  • Shin Fukuda

    (Komazawa University, Japan.)

Abstract

In this study, we construct a dynamic stochastic general equilibrium (DSGE) model to examine the impacts of infectious diseases on consumption dynamics. Assuming a model that considers the substitutability of consumption, we show that the slump in demand for consumption goods will be low in high-substitutability economy. Further, we show that immediate lockdown implementation upon the emergence of an epidemic can lead to a significant reduction in consumption, as well as alleviate the persistent stagnation of consumption, Although the analysis model in this study is simple, it reproduces the situations in United States and Japan, and it could be said that the impact of contingent policies, such as lockdown, has already been confirmed in Taiwan and New Zealand.

Suggested Citation

  • Shin Fukuda, 2023. "Impacts of the Substitutability of Consumption on Infection Dynamics," International Journal of Economics and Financial Issues, Econjournals, vol. 13(4), pages 8-14, July.
    • Handle: RePEc:eco:journ1:2023-04-2
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    References listed on IDEAS

    as
    1. Dirk Krueger & Harald Uhlig & Taojun Xie, 2022. "Macroeconomic dynamics and reallocation in an epidemic: evaluating the ‘Swedish solution’," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 37(110), pages 341-398.
    2. Martin Bodenstein & Giancarlo Corsetti & Luca Guerrieri, 2022. "Social distancing and supply disruptions in a pandemic," Quantitative Economics, Econometric Society, vol. 13(2), pages 681-721, May.
    3. Fernando Alvarez & David Argente, 2020. "A Simple Planning Problem for COVID-19 Lockdown," Working Papers 2020-34, Becker Friedman Institute for Research In Economics.
    4. Dirk Kruger & Harald Uhlig & Taojun Xie, 2020. "Macroeconomic Dynamics and Reallocation in an Epidemic," Working Papers 2020-43, Becker Friedman Institute for Research In Economics.
    5. Andrew Atkeson, 2020. "What Will be the Economic Impact of COVID-19 in the US? Rough Estimates of Disease Scenarios," Staff Report 595, Federal Reserve Bank of Minneapolis.
    6. Callum Jones & Thomas Philippon & Venky Venkateswaran, 2021. "Optimal Mitigation Policies in a Pandemic: Social Distancing and Working from Home [A simple planning problem for covid-19 lockdown]," The Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5188-5223.
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    More about this item

    Keywords

    Consumption substitutability; COVID-19; Lockdown; DSGE model;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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