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Epidemics in the New Keynesian Model, Journal of Economic Dynamics and Control

Abstract

This paper documents the behavior of key macro aggregates in the wake of the Covid epidemic. We show that a unique feature of the Covid recession is that the peak-to-trough decline is roughly the same for consumption, investment, and output. In contrast to the 2008 recession, there was only a short-lived rise in financial stress that quickly subsided. Finally, there was mild deflation between the peak to the trough of the Covid recession. We argue that a New Keynesian model that explicitly incorporates epidemic dynamics captures these qualitative features of the Covid recession.

Type

Article

Author(s)

Sergio Rebelo, Martin S. Eichenbaum, Mathias Trabandt

Date Published

2022

Citations

Rebelo, Sergio, Martin S. Eichenbaum, and Mathias Trabandt. 2022. Epidemics in the New Keynesian Model. Journal of Economic Dynamics and Control.

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