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Business Cycle and Health Dynamics during the COVID-19 Pandemic. A Scandinavian Perspective

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  • Hilde C. Bjørnland
  • Malin C. Jensen
  • Leif Anders Thorsrud

Abstract

We use a unique measure of daily economic activity and manually audited nonpharmaceutical intervention (NPI) indexes for Noway and Sweden to model the joint dynamic interaction between COVID-19 policy, health, and business cycle outcomes within a SVAR framework. Our analysis documents potentially large measurement errors in commonly used containment policy measures, and significant endogeneity between the model’s variables. Assuming reduced rank for the stochastic elements of the model and applying sign restrictions, we find that both containment policy shocks and precautionary behavior lowers the pandemic burden, but that containment policies also have significant adverse economic effects. Moreover, we find little support for using mobility statistics as a proxy for economic activity and we document that a large share of the variation in containment policies is driven by forward-looking behavior. Finally, we perform a series of counterfactual simulations highlighting the difference between unexpected and systematic NPI strategies, and the nexus between the Norwegian and Swedish experience in particular.

Suggested Citation

  • Hilde C. Bjørnland & Malin C. Jensen & Leif Anders Thorsrud, 2023. "Business Cycle and Health Dynamics during the COVID-19 Pandemic. A Scandinavian Perspective," Working Papers No 15/2023, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    • Handle: RePEc:bny:wpaper:0127
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    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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