The Macroeconomics of Testing and Quarantining

Abstract

We thank Joao Guerreiro and Laura Murphy for excellent research assistance. We also are thank Andrew Atkeson, Chad Jones and Pete Klenow for their comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Epidemics in the New Keynesian Model

“…Here, B t nominal bond holdings, R b t the interest rate on nominal bonds, W t is the nominal wage rate, R k t is the nominal rental price, and P t is the consumer price index. The household maximizes lifetime utility, (9), subject to the budget constraint, (21), the law of motion for capital, (10), and the equations that govern the health status of the household's members, (11), (12), (13), and (14). The first-order conditions for consumption, hours worked, k t+1 s t+1 , i t+1 , r t+1 , and τ t are described in the appendix.…”

Modern Infectious Diseases: Macroeconomic Impacts and Policy Responses

“…Pointing out the lack of observability of infection with COVID-19, Eichenbaum et al (2020b) consider a setting in which individual prevention efforts depend on their state of information. Assuming that a certain fraction of the population is (routinely) tested and thus fully informed about its infection status, they show that testing without quarantining identified infected individuals may, effectively, worsen outcomes, as in the absence of altruism those who are informed about an infection drop precautionary reductions in their activity.…”

“…Bloom and Glied (1991) point out similar welfare issues about testing in the context of HIV/AIDS. Brotherhood et al (2020) consider a similar setup, which, like Eichenbaum et al (2020b), features young and old individuals, differentiated disease states-mild/feverish, which could also be flu, and severe/hospitalized-and altruism on the part of the infected. They show that testing triggers additional preventive effort on the part of altruists who are revealed to be infected and is, indeed, a prerequisite for targeted quarantine.…”

COVID-19 with Stigma: Theory and Evidence from Mobility Data

“…In contrast to studies analyzing the effect of non-legally binding policies such as those described above, others analyze the effect of an enforceable lockdown on the economy (Acemoglu et al 2020;Alvarez et al 2020;Farboodi et al 2020;Holtemöller 2020;Eichenbaum et al 2020;Gharehgozli et al 2020;Mandel and Veetil 2020;Martin et al 2020). Martin et al (2020) develop a microeconomic model to assess the socioeconomic effect of COVID-19 on individuals, estimating the direct effect of the lockdown policy on household income, consumption, and poverty.…”