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The Macroeconomics of Epidemics

Author

Listed:
  • Martin S. Eichenbaum
  • Sergio Rebelo
  • Mathias Trabandt

Abstract

We extend the canonical epidemiology model to study the interaction between economic decisions and epidemics. Our model implies that people’s decision to cut back on consumption and work reduces the severity of the epidemic, as measured by total deaths. These decisions exacerbate the size of the recession caused by the epidemic. The competitive equilibrium is not socially optimal because infected people do not fully internalize the effect of their economic decisions on the spread of the virus. In our benchmark model, the best simple containment policy increases the severity of the recession but saves roughly half a million lives in the U.S.

Suggested Citation

  • Martin S. Eichenbaum & Sergio Rebelo & Mathias Trabandt, 2020. "The Macroeconomics of Epidemics," NBER Working Papers 26882, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:26882
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    References listed on IDEAS

    as
    1. Jérôme Adda, 2016. "Economic Activity and the Spread of Viral Diseases: Evidence from High Frequency Data," The Quarterly Journal of Economics, Oxford University Press, vol. 131(2), pages 891-941.
    2. Robert E. Hall & Charles I. Jones, 2007. "The Value of Life and the Rise in Health Spending," The Quarterly Journal of Economics, Oxford University Press, vol. 122(1), pages 39-72.
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    More about this item

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • H0 - Public Economics - - General
    • I1 - Health, Education, and Welfare - - Health

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