Epidemics and Policy: The Dismal Trade-off

I propose a stochastic SIR-Macro model to study the effects of alternative policies to cope with an epidemic. Lockdowns that order firms to close and that discontinues social activities slow down the epidemic progression at the cost of reducing GDP and increasing debt and, on average, decrease mortality. Testing strategies that identify and isolate a large number of infected but asymptomatics decrease mortality at a lower cost, but they are effective only if thorough. The more aggressive the pathogen, and the smaller the capacity of the health system, the bigger the gains from both policies. I also find that lockdowns work best in case of bigger average family size, diffused participation to the job market and bigger average workplace size.