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

34 Pages Posted: 14 May 2020 Last revised: 11 Jan 2022

See all articles by Finn E. Kydland

Finn E. Kydland

affiliation not provided to SSRN

Enrique Martínez-García

Federal Reserve Bank of Dallas - Research Department

Date Written: May, 2020

Abstract

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.

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, 2020). Globalization Institute Working Paper No. 384, Available at SSRN: https://ssrn.com/abstract=3600454 or http://dx.doi.org/10.24149/gwp384

Finn E. Kydland (Contact Author)

affiliation not provided to SSRN

No Address Available

Enrique Martinez-Garcia

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)

HOME PAGE: http://sites.google.com/view/emgeconomics

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