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Production networks and epidemic spreading: How to restart the UK economy?

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Listed:
  • Anton Pichler
  • Marco Pangallo
  • R. Maria del Rio-Chanona
  • Franc{c}ois Lafond
  • J. Doyne Farmer

Abstract

We analyse the economics and epidemiology of different scenarios for a phased restart of the UK economy. Our economic model is designed to address the unique features of the COVID-19 pandemic. Social distancing measures affect both supply and demand, and input-output constraints play a key role in restricting economic output. Standard models for production functions are not adequate to model the short-term effects of lockdown. A survey of industry analysts conducted by IHS Markit allows us to evaluate which inputs for each industry are absolutely necessary for production over a two month period. Our model also includes inventory dynamics and feedback between unemployment and consumption. We demonstrate that economic outcomes are very sensitive to the choice of production function, show how supply constraints cause strong network effects, and find some counter-intuitive effects, such as that reopening only a few industries can actually lower aggregate output. Occupation-specific data and contact surveys allow us to estimate how different industries affect the transmission rate of the disease. We investigate six different re-opening scenarios, presenting our best estimates for the increase in R0 and the increase in GDP. Our results suggest that there is a reasonable compromise that yields a relatively small increase in R0 and delivers a substantial boost in economic output. This corresponds to a situation in which all non-consumer facing industries reopen, schools are open only for workers who need childcare, and everyone who can work from home continues to work from home.

Suggested Citation

  • Anton Pichler & Marco Pangallo & R. Maria del Rio-Chanona & Franc{c}ois Lafond & J. Doyne Farmer, 2020. "Production networks and epidemic spreading: How to restart the UK economy?," Papers 2005.10585, arXiv.org.
  • Handle: RePEc:arx:papers:2005.10585
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    More about this item

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • I19 - Health, Education, and Welfare - - Health - - - Other
    • O49 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Other

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