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Stay At Home! Macroeconomic Effects of Pandemic-Induced Job Separation Shocks

Author

Listed:
  • Marcelo Arbex

    (Department of Economics, University of Windsor)

  • Michael Batu

    (Department of Economics, University of the Fraser Valley)

  • Sidney Caetano

    (Department of Economics, Federal University of Juiz de Fora)

Abstract

We study the macroeconomic effects of a pandemic-induced time-varying job separation rate (JSR). Governments have imposed mandatory stay-at-home orders to reduce the spread of COVID-19. Uncertainties affecting labor market dynamics and the economy are tied to uncertainties surrounding the pandemic and stay-at-home orders. We compare the pandemic-induced JSR with other events that generated large increases in unemployment. We show that the economic effects of unexpected changes in the JSR and the dispersion of these changes depend crucially on the Taylor-rule type adopted by the monetary authority - more severe recessions following JSR shocks under rules with no interest rate smoothing. The generosity of fiscal policy alleviates the negative effects of pandemic-induced job separation shocks.

Suggested Citation

  • Marcelo Arbex & Michael Batu & Sidney Caetano, 2020. "Stay At Home! Macroeconomic Effects of Pandemic-Induced Job Separation Shocks," Working Papers 2002, University of Windsor, Department of Economics.
    • Handle: RePEc:wis:wpaper:2002
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    References listed on IDEAS

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    More about this item

    Keywords

    Uncertainty; pandemic; unemployment; business cycles; monetary policy.;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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