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The Great Lockdown: information, noise and macroeconomic fluctuations

Author

Listed:
  • Michał Brzoza-Brzezina

    (SGH Warsaw School of Economics)

  • Grzegorz Wesołowski

    (University of Warsaw, Faculty of Economic Sciences)

Abstract

This paper argues that not only actual lockdowns can affect economies, but also noisy information about them. We construct a New Keynesian model with imperfect information about how long the lockdown would last. On the one hand, a false signal about the lockdown lowers consumption, investment, employment and output and this effect can be quantitatively sizable. On the other hand, a true information about a lockdown being introduced can also be misinterpreted and hence cause an impact on agents' decisions being quantitatively different from the one desired by the authorities. To the extent that the latter have less noisy information about future lockdowns than the private sector, they can reduce these undesired fluctuations by precisely communicating the lockdown policy. Importantly, under some circumstances only radical improvements in information precision are successful.

Suggested Citation

  • Michał Brzoza-Brzezina & Grzegorz Wesołowski, 2021. "The Great Lockdown: information, noise and macroeconomic fluctuations," Working Papers 2021-26, Faculty of Economic Sciences, University of Warsaw.
    • Handle: RePEc:war:wpaper:2021-26
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    File URL: https://www.wne.uw.edu.pl/index.php/download_file/6877/
    File Function: First version, 2021
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    Keywords

    Covid-19; lockdown; imperfect information; communication;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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