Economic Impact of COVID-19: Lessons from Past Pandemics and Recent Data
Paper Session
Sunday, Jan. 3, 2021 12:15 PM - 2:15 PM (EST)
- Chair: Jonathan D. Ostry, International Monetary Fund
The Role of Containment and Macroeconomic Measures in Shaping the Transmission and Economic Effects of COVID-19
Abstract
The paper uses daily real-time measures implemented by countries around the world to quantify the effect of containment and macroeconomic policy measures on the spread of the virus and on high-frequency economic indicators.The Macroeconomics of Epidemics
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 best simple containment policy increases the severity of the recession but saves roughly half a million lives in the U.S. Smart containment, which conditions policies on health status, does even better.Coping with Disasters: Two Centuries of International Official Lending
Abstract
COVID-19 is the first crisis since the 1930s to engulf both advanced and emerging economies on a sustained basis. While the monetary and fiscal policy response to the health crisis has included a broad spectrum of stimulus packages in developed markets, these policies were almost entirely directed toward limiting the damage to the domestic economy. Assistance and lending to the developing world has been predominantly funneled through multilateral institutions, as private cross-border capital flows collapsed. This paper analyzes the international official response to the pandemic in an encompassing historical context that includes wars, financial crises, or natural catastrophes. We assemble the first comprehensive dataset of international loans extended by governments and central banks. Our data covers 230,000 official loans, grants and guarantees in the period 1790-2015. We show that official lending in the past two centuries is much larger than commonly understood. In periods of turmoil, official capital flows have repeatedly surpassed total private capital. Since the 2000s, official finance has made a sharp comeback, due to: increased economic globalization; the rise of China as an international creditor; and the return of cross-border lending by central banks in the form of swap lines.Modern Pandemics: Recession and Recovery
Abstract
We examine the immediate effects and bounce-back from six modern health crises: 1968 Flu, SARS (2003), H1N1 (2009), MERS (2012), Ebola (2014), and Zika (2016). Time-series models for a large cross-section of countries indicate that real GDP growth falls by around three percentage points in affected countries relative to unaffected countries in the year of the outbreak. Bounce-back in GDP growth is rapid, but output is still below pre-shock level five years later. Unemployment for less educated workers is higher and exhibits more persistence, and there is significantly greater persistence in female unemployment than male. The negative effects on GDP and unemployment are felt less in countries with larger first-year responses in government spending, especially on health care. Affected countries’ consumption declines, investment drops sharply, and international trade plummets. Bounce-back in these expenditure categories is also rapid but not by enough to restore pre-shock trends. Furthermore, indirect effects on own-country GDP from affected trading partners are significant for both the initial GDP decline and the positive bounce back. We discuss why our estimates are a lower bound for the global economic effects of COVID-19 and compare contours of the current pandemic to the historical episodes.Discussant(s)
Andrew G. Atkeson
,
University of California-Los Angeles
Steven J. Davis
,
University of Chicago
Christopher J. Erceg
,
International Monetary Fund
Michael D. Bordo
,
Rutgers University
Scott R. Baker
,
Northwestern University
JEL Classifications
- E0 - General