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

Author

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  • Bognanni, Mark

    (Federal Reserve Board of Governors)

  • Hanley, Doug

    (University of Pittsburgh)

  • Kolliner, Daniel

    (University of Maryland)

  • Mitman, Kurt

    (Stockholm University)

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.

Suggested Citation

  • Bognanni, Mark & Hanley, Doug & Kolliner, Daniel & Mitman, Kurt, 2020. "Economics and Epidemics: Evidence from an Estimated Spatial Econ-SIR Model," IZA Discussion Papers 13797, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp13797
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    References listed on IDEAS

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    Cited by:

    1. Jonas E. Arias & Jesús Fernández-Villaverde & Juan Rubio Ramírez & Minchul Shin, 2021. "Bayesian Estimation of Epidemiological Models: Methods, Causality, and Policy Trade-Offs," NBER Working Papers 28617, National Bureau of Economic Research, Inc.
    2. Jonas E. Arias & Jesús Fernández-Villaverde & Juan F. Rubio-Ramirez & Minchul Shin, 2021. "Bayesian Estimation of Epidemiological Models: Methods, Causality, and Policy Trade-Offs," Working Papers 21-18, Federal Reserve Bank of Philadelphia.
    3. Hakan Yilmazkuday, 2021. "Welfare Costs of Travel Reductions within the U.S. due to COVID-19," Working Papers 2114, Florida International University, Department of Economics.
    4. 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.
    5. Mitman, Kurt & Rabinovich, Stanislav, 2021. "Whether, When and How to Extend Unemployment Benefits: Theory and Application to COVID-19," CEPR Discussion Papers 15748, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    epidemics; economic policy; COVID-19; Econ-SIR;
    All these keywords.

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • H0 - Public Economics - - General
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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