Ecb-Basir: A Primer on the Macroeconomic Implications of the Covid-19 Pandemic

40 Pages Posted: 29 Jun 2020

See all articles by Elena Angelini

Elena Angelini

European Central Bank (ECB)

Matthieu Darracq Paries

European Central Bank (ECB)

Srecko Zimic

European Central Bank (ECB) - Directorate General Research

Milan Damjanović

Bank of Slovenia

Date Written: June, 2020

Abstract

This paper studies the macroeconomic consequences of the COVID-19 pandemic and makes a first step in adapting the central bank modelling apparatus to the new economic landscape. We augment the ECB-BASE model with the predictive dynamics of the SIR model in order to assess the interplay between epidemiological fundamentals, containment policies and the macroeconomy. Containment policies considerably reduce the share of infected and deceased people, but generate a sharp decline in economic activity. Barring the materialization of amplification risks, the induced recession may remain broadly V-shaped under targeted confinement policies. By comparison, a "laissez-faire" approach to the pandemic emergency can even inflict in some cases higher long-term economic costs. Nevertheless, the depth of the recession and the speed of the recovery (if at all) crucially depend on the magnitude and persistence of the supply-side retrenchment, as well as on the risk of macro-financial feedback loops.

Keywords: COVID-19, ECB-BASE, epidemic, modelling

JEL Classification: E1, E3, I1

Suggested Citation

Angelini, Elena and Darracq Paries, Matthieu and Zimic, Srecko and Damjanović, Milan, Ecb-Basir: A Primer on the Macroeconomic Implications of the Covid-19 Pandemic (June, 2020). ECB Working Paper No. 20202431, Available at SSRN: https://ssrn.com/abstract=3638070 or http://dx.doi.org/10.2139/ssrn.3638070

Elena Angelini (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
49 69 1344 7912 (Phone)
44 69 1344 6575 (Fax)

Matthieu Darracq Paries

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+496913446631 (Phone)
+496913447604 (Fax)

Srecko Zimic

European Central Bank (ECB) - Directorate General Research ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Milan Damjanović

Bank of Slovenia

Slovenska cesta 35
Slovenija, 1505
Slovenia

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