Research Details

Abstract

We extend the canonical epidemiology model to study the interaction between economic decisions and epidemics. Our model implies that people's decision to cut back on consumption and work reduces the severity of the epidemic, as measured by total deaths. These decisions exacerbate the size of the recession caused by the epidemic. The competitive equilibrium is not socially optimal because infected people do not fully internalize the effect of their economic decisions on the spread of the virus. In our benchmark model, the optimal containment policy increases the severity of the recession but saves roughly half a million lives in the U.S.

Type

Article

Author(s)

Sergio Rebelo, Martin S. Eichenbaum, Mathias Trabandt

Date Published

2021

Citations

Rebelo, Sergio, Martin S. Eichenbaum, and Mathias Trabandt. 2021. The Macroeconomics of Epidemics. Review of Financial Studies.: 5149-5187.