The Macroeconomics of Age-Varying Epidemics

41 Pages Posted: 20 Jul 2020

Date Written: June 18, 2020

Abstract

We incorporate age-specific socio-economic interactions in a SIR macroeconomic model to study the role of demographic factors for the COVID-19 epidemic evolution, its macroeconomic outcomes and possible containment measures. Our framework captures the endogenous response of rational individuals who freely reduce consumption- and labor-related personal exposure to the virus, with interactions that can vary within and across ages, while fail to internalize the impact of their actions on others. In absence of intervention this amplifies the economic losses, but it also implies that individual behavioral response to the risk of infection is an important ally of the needed policy measures to contain the spread of the virus. We find that for any level of social distancing, the implied optimal economic shutdown generates small gains in terms of lives and large average output losses over one-year time that could be avoided, for given lives saved, with age-targeted social distancing. This result is confirmed by a version of the model calibrated to match real epidemic and economic data evolution in the first months of 2020.

Note: Funding: None to declare

Declaration of Interest: None to declare

Keywords: Epidemic, COVID-19, recessions, demographics, age differences, vaccine, containment policies, SIR macro model

JEL Classification: E1, I1, H0

Suggested Citation

Giagheddu, Marta and Papetti, Andrea, The Macroeconomics of Age-Varying Epidemics (June 18, 2020). Available at SSRN: https://ssrn.com/abstract=3651251 or http://dx.doi.org/10.2139/ssrn.3651251

Marta Giagheddu

University of Lund ( email )

Tycho Brahes väg 1
Lund, 223 63
Sweden

Andrea Papetti (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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