Martin S. Eichenbaum, Sergio Rebeloy, and Mathias Trabandtz published The Macroeconomics of Epidemics on March 20, 2020.

It may just be me missing my Economics studies, but I thought this was a really excellent and accessible read, illustrating the economist’s model-based way of thinking about COVID and about the world in general.

Some of my key takeaways / interesting bits were:


“We find that it is optimal to introduce large-scale containment measures that result in a sharp, sustained drop in aggregate output. This optimal containment policy saves about 600,000 lives in the U.S.” and “there is an inevitable trade-off between the severity of the recession and the health consequences of the epidemic.”


“The competitive equilibrium is not Pareto optimal because people infected with the virus do not fully internalize the effect of their consumption and work decisions […] because each individual agent takes economy-wide infection rates as given.”


“How do epidemics end? In both the SIR and SIR-macro models, epidemics end when a sufficiently high fraction of the population acquires immunity. Absent treatments or vaccines, the only way to acquire immunity is to become infected and recover.”

Extending the model:

“An important concern in many countries is that the healthcare system will be overwhelmed by a large number of infected people. To analyze this scenario, we consider a version of our model in which the mortality rate is an increasing function of the number of people infected. ”

Extending the model:

“With vaccines as a possibility, it is optimal to immediately introduce severe containment measures to minimize deaths. Those containment measures cause a large recession. But this recession is worth incurring in the hope that the vaccination arrives before many people get infected. “


“…our model abstracts from various forces that might affect the long-run performance of the economy. These forces include bankruptcy costs, hysteresis effects from unemployment, and the destruction of supply-side chains”