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Research Details

Epidemics in the Neoclassical and New Keynesian Models

Abstract

We analyze the effects of an epidemic in three standard macroeconomic models. We find that the neoclassical model does not rationalize the positive comovement of consumption and investment observed in recessions associated with an epidemic. Intro- ducing monopolistic competition into the neoclassical model remedies this shortcoming even when prices are completely flexible. Finally, sticky prices lead to a larger recession but do not fundamentally alter the predictions of the monopolistic competition model.

Type

Working Paper

Author(s)

Sergio Rebelo, Martin S. Eichenbaum, Mathias Trabandt

Date Published

2020

Citations

Rebelo, Sergio, Martin S. Eichenbaum, and Mathias Trabandt. 2020. Epidemics in the Neoclassical and New Keynesian Models.

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