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Infection Is the Cycle: Unemployment, Output and Economic Policies in the COVID-19 Pandemic

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  • Maria Cristina Barbieri Góes
  • Ettore Gallo

Abstract

This paper seeks to capture the dynamic interaction between the epidemiological evolution of COVID-19 and its effect on the macroeconomy, in absence of widespread vaccination. We do that by building a stylized two-equations dynamical system in the COVID-19 positivity rate and the unemployment rate. The solution of the system makes the case for an endemic equilibrium of COVID-19 infections, thus producing waves in the two variables in the absence of widespread immunity through vaccination. Furthermore, we model the impact of the pandemic-driven unemployment shock on output, showing how the emergence of cyclical downswings could determine a L-shaped recession in the medium run, in absence of adequate stimulus policies. Moreover, we simulate the model, calibrating it for the US. The simulation highlights the effects on unemployment and on overall economic activity produced by recurrent waves of COVID-19, which risk to jeopardize the coming back to the pre-crisis trend in the medium run.

Suggested Citation

  • Maria Cristina Barbieri Góes & Ettore Gallo, 2021. "Infection Is the Cycle: Unemployment, Output and Economic Policies in the COVID-19 Pandemic," Review of Political Economy, Taylor & Francis Journals, vol. 33(3), pages 377-393, July.
  • Handle: RePEc:taf:revpoe:v:33:y:2021:i:3:p:377-393
    DOI: 10.1080/09538259.2020.1861817
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    Cited by:

    1. Peter Flaschel & Giorgos Galanis & Daniele Tavani & Roberto Veneziani, 2021. "Pandemics and Aggregate Demand: a Framework for Policy Analysis," Working Papers PKWP2101, Post Keynesian Economics Society (PKES).
    2. Lorenzo Pratici & Phillip McMinn Singer, 2021. "COVID-19 Vaccination: What Do We Expect for the Future? A Systematic Literature Review of Social Science Publications in the First Year of the Pandemic (2020–2021)," Sustainability, MDPI, vol. 13(15), pages 1-18, July.
    3. Vinicius Albani & Matheus Grasselli & Weijie Pang & Jorge P. Zubelli, 2022. "The Interplay between COVID-19 and the Economy in Canada," JRFM, MDPI, vol. 15(10), pages 1-26, October.
    4. Anasuya Haldar & Narayan Sethi, 2022. "The Economic Effects Of Covid-19 Mitigation Policies On Unemployment And Economic Policy Uncertainty," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 25(Special I), pages 61-84, March.
    5. Andrej Privara, 2022. "Economic growth and labour market in the European Union: lessons from COVID-19," Oeconomia Copernicana, Institute of Economic Research, vol. 13(2), pages 355-377, June.
    6. Lucia Svabova & Eva Nahalkova Tesarova & Marek Durica & Lenka Strakova, 2021. "Evaluation of the impacts of the COVID-19 pandemic on the development of the unemployment rate in Slovakia: counterfactual before-after comparison," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 16(2), pages 261-284, June.

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