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The Macroeconomics of Epidemics
[Economic activity and the spread of viral diseases: Evidence from high frequency data]

Author

Listed:
  • Martin S Eichenbaum
  • Sergio Rebelo
  • Mathias Trabandt

Abstract

We extend the canonical epidemiology model to study the interaction between economic decisions and epidemics. Our model implies that people cut back on consumption and work to reduce the chances of being infected. These decisions reduce the severity of the epidemic but exacerbate the size of the associated recession. The competitive equilibrium is not socially optimal because infected people do not fully internalize the effect of their economic decisions on the spread of the virus. In our benchmark model, the best simple containment policy increases the severity of the recession but saves roughly half a million lives in the United States.

Suggested Citation

  • Martin S Eichenbaum & Sergio Rebelo & Mathias Trabandt, 2021. "The Macroeconomics of Epidemics [Economic activity and the spread of viral diseases: Evidence from high frequency data]," Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5149-5187.
  • Handle: RePEc:oup:rfinst:v:34:y:2021:i:11:p:5149-5187.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhab040
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    More about this item

    JEL classification:

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

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