Economics and Epidemics: Evidence from an Estimated Spatial Econ-Sir Model

59 Pages Posted: 27 Oct 2020

See all articles by Mark Bognanni

Mark Bognanni

Board of Governors of the Federal Reserve System

Douglas Hanley

University of Pittsburgh

Daniel Kolliner

University of Maryland - College Park

Kurt Mitman

Stockholm University; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: October, 2020

Abstract

Economic analysis of effective policies for managing epidemics requires an integrated economic and epidemiological approach. We develop and estimate a spatial, micro-founded model of the joint evolution of economic variables and the spread of an epidemic. We empirically discipline the model using new U.S. county-level data on health, mobility, employment outcomes, and non-pharmaceutical interventions (NPIs) at a daily frequency. Absent policy or medical interventions, the model predicts an initial period of exponential growth in new cases, followed by a protracted period of roughly constant case levels and reduced economic activity. Nevertheless, if vaccine development proved impossible, and suppression cannot entirely eradicate the disease, a utilitarian policymaker cannot improve significantly over the laissez-faire equilibrium by using lockdowns. Conversely, if a vaccine will arrive within two years, NPIs can improve upon the laissez-faire outcome by dramatically decreasing the number of infectious agents and keeping infections low until vaccine arrival. Mitigation measures that reduce viral transmission (e.g., mask-wearing) both reduce the virus's spread and increase economic activity.

JEL Classification: E60, I10

Suggested Citation

Bognanni, Mark and Hanley, Douglas and Kolliner, Daniel and Mitman, Kurt, Economics and Epidemics: Evidence from an Estimated Spatial Econ-Sir Model (October, 2020). FEDS Working Paper No. 2020-91, Available at SSRN: https://ssrn.com/abstract=3719450 or http://dx.doi.org/10.17016/FEDS.2020.091

Mark Bognanni (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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

Douglas Hanley

University of Pittsburgh ( email )

135 N Bellefield Ave
Pittsburgh, PA 15260
United States

HOME PAGE: http://doughanley.com/

Daniel Kolliner

University of Maryland - College Park ( email )

College Park, MD 20742
United States

Kurt Mitman

Stockholm University ( email )

Universitetsvägen 10
Stockholm, Stockholm SE-106 91
Sweden

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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