The Macroeconomics of Testing and Quarantining
42 Pages Posted: 8 May 2020 Last revised: 29 Mar 2022
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The Macroeconomics of Testing and Quarantining
Date Written: May 2020
Abstract
We develop a SIR-based macroeconomic model to study the impact of testing/quarantining and social distancing/mask use on health and economic outcomes. These policies can dramatically reduce the costs of an epidemic. Absent testing/quarantining, the main effect of social distancing and mask use on health outcomes is to delay, rather than reduce, epidemic-related deaths. Social distancing and mask use reduce the severity of the epidemic-related recession but prolong its duration. There is an important synergy between social distancing and mask use and testing/quarantining. Social distancing and mask use buy time for testing and quarantining to come to the rescue. The benefits of testing/quarantining are even larger when people can get reinfected, either because the virus mutates or immunity is temporary.
Keywords: containment, COVID-19, Epidemic, Quarantine, Recessions, Testing
JEL Classification: E1, H0, I1
Suggested Citation: Suggested Citation