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Economics and Epidemics: Evidence from an Estimated Spatial Econ-SIR Model

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Abstract

Economic analysis of effective policies for managing epidemics requires an integrated economic and epidemiological approach. We develop and estimate a spatial, micro-founded model of the joint evolution of economic variables and the spread of an epidemic. We empirically discipline the model using new U.S. county-level data on health, mobility, employment outcomes, and non-pharmaceutical interventions (NPIs) at a daily frequency. Absent policy or medical interventions, the model predicts an initial period of exponential growth in new cases, followed by a protracted period of roughly constant case levels and reduced economic activity. Nevertheless, if vaccine development proved impossible, and suppression cannot entirely eradicate the disease, a utilitarian policymaker cannot improve significantly over the laissez-faire equilibrium by using lockdowns. Conversely, if a vaccine will arrive within two years, NPIs can improve upon the laissez-faire outcome by dramatically decreasing the number of infectious agents and keeping infections low until vaccine arrival. Mitigation measures that reduce viral transmission (e.g., mask-wearing) both reduce the virus's spread and increase economic activity.

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  • , 2020. "Economics and Epidemics: Evidence from an Estimated Spatial Econ-SIR Model," Finance and Economics Discussion Series 2020-091, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2020-91
    DOI: 10.17016/FEDS.2020.091
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    1. Scott R. Baker & R.A. Farrokhnia & Steffen Meyer & Michaela Pagel & Constantine Yannelis, 2020. "How Does Household Spending Respond to an Epidemic? Consumption During the 2020 COVID-19 Pandemic," Working Papers 2020-30, Becker Friedman Institute for Research In Economics.
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    As found on the RePEc Biblio, the curated bibliography for Economics:
    1. > Economics of Welfare > Health Economics > Economics of Pandemics > Specific pandemics > Covid-19 > Modelling > Statistical Modelling

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    Cited by:

    1. Makris, M. & Toxvaerd, F., 2020. "Great Expectations: Social Distancing in Anticipation of Pharmaceutical Innovations," Cambridge Working Papers in Economics 2097, Faculty of Economics, University of Cambridge.
    2. Mitman, Kurt & Rabinovich, Stanislav, 2021. "Whether, When and How to Extend Unemployment Benefits: Theory and Application to COVID-19," IZA Discussion Papers 14085, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    Epidemics; Covid-19; Econ-sir; Economic policy;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • I10 - Health, Education, and Welfare - - Health - - - General

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