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:

Takeaway:

“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.”

Takeaway:

“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.”

Assumption:

“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. “

Assumptions:

“…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”