Social Distancing and Supply Disruptions in a Pandemic

52 Pages Posted: 18 May 2020

See all articles by Martin Bodenstein

Martin Bodenstein

Board of Governors of the Federal Reserve System

Giancarlo Corsetti

University of Cambridge; University of Rome III - Department of Economics; Centre for Economic Policy Research (CEPR)

Luca Guerrieri

Board of Governors of the Federal Reserve System

Date Written: April 17, 2020

Abstract

Drastic public health measures such as social distancing or lockdowns can reduce the loss of human life by keeping the number of infected individuals from exceeding the capacity of the health care system but are often criticized because of the social and the economic cost they entail. We question this view by combining an epidemiological model, calibrated to capture the spread of the COVID-19 virus, with a multisector model, designed to capture key characteristics of the U.S. Input Output Tables. Our two-sector model features a core sector that produces intermediate inputs not easily replaced by inputs from the other sector, subject to minimum-scale requirements. We show that, by affecting workers in this core sector, the high peak of an infection not mitigated by social distancing may cause very large upfront economic costs in terms of output, consumption and investment. Social distancing measures can reduce these costs, especially if skewed towards non-core industries and occupations with tasks that can be performed from home, helping to smooth the surge in infections among workers in the core sector.

Keywords: Infectious disease; Epidemic; Recession; COVID-19

JEL Classification: E10; E30; I10

Suggested Citation

Bodenstein, Martin and Corsetti, Giancarlo and Guerrieri, Luca, Social Distancing and Supply Disruptions in a Pandemic (April 17, 2020). FEDS Working Paper No. 2020-031 https://doi.org/10.17016/FEDS.2020.031 , Available at SSRN: https://ssrn.com/abstract=3601301

Martin Bodenstein (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Giancarlo Corsetti

University of Cambridge ( email )

University of Rome III - Department of Economics ( email )

via Ostiense 139
Rome, 00154
Italy
+39 06 5737 4056 (Phone)
+39 06 5737 4093 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Luca Guerrieri

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2550 (Phone)

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