As part of the Joint webinar series organised by the Department of International Economics and the CEPR, we are pleased to invite you to an online public talk by Professor Harald Uhlig. He will present his paper
Macroeconomic Dynamics and Reallocation in an Epidemic
coauthored with Dirk Krueger and Taojun Xie and published in the Covid Economics, Vetted and Real-Time Papers series (CEPR Press, Issue 5, April 2020).
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Abstract: In this paper, we argue that endogenous shifts in private consumption behaviour across sectors of the economy can act as a potent mitigation mechanism during an epidemic or when the economy is re-opened after a temporary lockdown. Extending the theoretical framework proposed by Eichenbaum-Rebelo-Trabandt (2020), we distinguish goods by the degree to which they can be consumed at home rather than in a social (and thus possibly contagious) context. We demonstrate that, within the model the "Swedish solution" of letting the epidemic play out without government intervention and allowing agents to shift their sectoral behavior on their own can lead to a substantial mitigation of the economic and human costs of the Covid-19 crisis, avoiding more than 80% of the decline in output and of the number of deaths within one year, compared to a model in which sectors are assumed to be homogeneous. For different parameter configurations that capture the additional social distancing and hygiene activities individuals might engage involuntarily, we show that infections may decline entirely on their own, simply due to the individually rational reallocation of economic activity: the curve not only just flattens, it gets reversed.
Covid Economics, Vetted and Real-Time Papers, from CEPR, brings together formal investigations on the economic issues emanating from the Covid outbreak, based on explicit theory and/or empirical evidence, to improve the knowledge base.
Founder: Beatrice Weder di Mauro, President of CEPR | Editor: Charles Wyplosz, Graduate Institute Geneva and CEPR.