Internal and External Effects of Social Distancing in a Pandemic

Abstract

as well as numerous seminar participants. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. Maryam Farboodi has received financial support from MIT for this research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

COVID-19 and Emerging Markets: A SIR Model, Demand Shocks and Capital Flows

“…Several recent closed economy papers employing epidemiological models similar to us, including Acemoglu et al (2020), Alvarez et al (2020), Farboodi et al (2020), and Eichenbaum et al (2020) reach comparable conclusions where imposing full lockdowns or stricter measures at the early stages of the pandemic lower economic costs due to normalizing aggregate demand. We argue that, for an open economy, the effects are even bigger as lower external demand amplifies the domestic demand shock via sectoral I-O linkages.…”

“…Combining supply and demand in a SIR framework Farboodi et al (2020) internalizes the individual choices for social distancing and study both laissez-faire and social optimum scenarios. They find that even in the laissez-faire case individuals choose to sharply reduce their activity but the socially optimal response imposes severe restrictions at the onset of the outbreak.…”

Optimal Targeted Lockdowns in a Multi-Group SIR Model

“…Closer to our paper, a number of recent papers have started incorporating economic trade-offs and conducting optimal policy analysis within the SIR framework (e.g. Rowthorn and Toxvaerd, 2020, Eichenbaum, Rebelo and Trabandt 2020a, Alvarez, Argente and Lippi 2020, Jones, Philippon and Venkateswaran, 2020, Farboodi, Jarosch and Shimer, 2020and Garriga et al, 2020. 7 All of the papers undertaking an optimal control analysis have worked with single-group models.…”

The Macroeconomics of Testing and Quarantining

“…In the budget constraint (12), " u t denotes a lump-sum transfer from the government. The first-order conditions with respect to c u t , n u t , ' u t , p(i t+1 |a t+1 ), and p(s t+1 |a t+1 ) are given by…”

“…People outside the testing pool maximize their lifetime utility, (11), subject to the budget constraint, (12), the transmission function, (13), and the probability of being infected, (14).…”