The Fed – Economics & Epidemics: Evidence from an Estimated Spatial Econ-SIR Model

Mark Bognanni, Doug Hanley, Daniel Kolliner, Kurt Mitman

Abstract:

Economic analysis of effective policies for managing epidemics requires an integrated economic & epidemiological approach. We develop & estimate a spatial, micro-founded model of the joint evolution of economic variables & the spread of an epidemic. We empirically discipline the model using new U.S. county-level data on health, mobility, employment outcomes, & non-pharmaceutical interventions (NPIs) at a daily frequency. Absent policy or medical interventions, the model predicts an initial period of exponential growth in new cases, followed by a protracted period of roughly constant case levels & reduced economic activity. Nevertheless, if vaccine development proved impossible, & suppression cannot entirely eradicate the disease, a utilitarian policymaker cannot improve significantly over the laissez-faire equilibrium by using lockdowns. Conversely, if a vaccine will arrive within two years, NPIs can improve upon the laissez-faire outcome by dramatically decreasing the number of infectious agents & keeping infections low until vaccine arrival. Mitigation measures that reduce viral transmission (e.g., mask-wearing) both reduce the virus’s spread & increase economic activity.

DOI: https://doi.org/10.17016/FEDS.2020.091

PDF: Download from the source: Federal Reserves

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