Scarring Body and Mind: The Long-Term Belief-Scarring Effects of Covid-19

41 Pages Posted: 29 Jun 2020 Last revised: 20 Jul 2020

See all articles by Julian Kozlowski

Julian Kozlowski

New York University (NYU)

Laura Veldkamp

Columbia University - Columbia Business School; National Bureau of Economic Research (NBER)

Venky Venkateswaran

New York University (NYU) - Leonard N. Stern School of Business; Federal Reserve Banks - Federal Reserve Bank of Minneapolis

Multiple version iconThere are 2 versions of this paper

Date Written: June 2020

Abstract

The largest economic cost of the COVID-19 pandemic could arise from changes in behavior long after the immediate health crisis is resolved. A potential source of such a long-lived change is scarring of beliefs, a persistent change in the perceived probability of an extreme, negative shock in the future. We show how to quantify the extent of such belief changes and determine their impact on future economic outcomes. We find that the long-run costs for the U.S. economy from this channel is many times higher than the estimates of the short-run losses in output. This suggests that, even if a vaccine cures everyone in a year, the COVID-19 crisis will leave its mark on the US economy for many years to come.

Suggested Citation

Kozlowski, Julian and Veldkamp, Laura and Venkateswaran, Venky, Scarring Body and Mind: The Long-Term Belief-Scarring Effects of Covid-19 (June 2020). NBER Working Paper No. w27439, Available at SSRN: https://ssrn.com/abstract=3637740

Julian Kozlowski (Contact Author)

New York University (NYU) ( email )

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Laura Veldkamp

Columbia University - Columbia Business School ( email )

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National Bureau of Economic Research (NBER)

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Venky Venkateswaran

New York University (NYU) - Leonard N. Stern School of Business ( email )

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