Checking the Path Towards Recovery from the COVID-19 Isolation Response

35 Pages Posted: 13 May 2020

See all articles by Finn E. Kydland

Finn E. Kydland

UC-Santa Barbara

Enrique Martínez-García

Federal Reserve Bank of Dallas - Research Department

Date Written: May 5, 2020


This paper examines the impact of the behavioral changes and governments' responses to the spread of the COVID-19 pandemic using a unique dataset of daily private forecasters' expectations on a sample of 32 emerging and advanced economies from January 1 till April 13, 2020. We document three important lessons from the data: First, there is evidence of a relation between the stringency of the policy interventions and the health outcomes consistent with slowing down the spread of the pandemic. Second, we find robust evidence that private forecasters have come to anticipate a sizeable contraction in economic activity followed by a check mark recovery as a result of the governments' increasingly stringent response. The evidence suggests also that workplace restrictions have further contributed to the downturn and to the subsequent sluggish recovery--opening up the question about the costs of tighter work restrictions. Finally, we argue inflation expectations have not changed significantly so far. Through the lens of the neoclassical growth model, these changes in macro expectations can result from the resulting work disruptions and the potential productivity slowdown from the gradual de-escalation of the confinement.

Keywords: COVID-19, Macro Expectations, Flattening the Curve, Policy Response Stringency, Google Mobility

JEL Classification: I18, F62, E30, C23, C83

Suggested Citation

Kydland, Finn E. and Martinez-Garcia, Enrique, Checking the Path Towards Recovery from the COVID-19 Isolation Response (May 5, 2020). Available at SSRN: or

Finn E. Kydland

UC-Santa Barbara ( email )

Santa Barbara, CA 93106
United States


Enrique Martinez-Garcia (Contact Author)

Federal Reserve Bank of Dallas - Research Department ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States
214-922-5262 (Phone)


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