COVID-19 and Lockdown Policies: A Structural Simulation Model of a Bottom-Up Recession in Four Countries

IFPRI Discussion Paper 2015 (2021)

56 Pages Posted: 20 Apr 2021

See all articles by Sherman Robinson

Sherman Robinson

International Food Policy Research Institute (IFPRI)

Stephanie Levy

London School of Economics & Political Science (LSE) - Department of International Development

Victor Hernández

National Institute of Statistics and Geography

Rob Davies

United Nations University-World Institute for Development Economics Research (UNU-WIDER)

Raul Hinojosa-Ojeda

University of California, Los Angeles (UCLA)

Sherwin Gabriel

CGIAR - Environment and Production Technology Division

Channing Arndt

International Food Policy Research Institute (IFPRI)

Dirk Ernst van Seventer

United Nations - World Institute for Development Economics Research (UNU/WIDER)

Marcelo Pleitez

University of California, Los Angeles (UCLA)

Date Written: April 19, 2021

Abstract

This paper considers different approaches to modelling the economic impact of the COVID-19 pandemic/lockdown shocks. We review different modelling strategies and argue that, given the nature of the bottom-up recession caused by the pandemic/lockdowns, simulation models of the shocks should be based on a social accounting matrix (SAM) that includes both disaggregated sectoral data and the national accounts in a unified framework. SAM-based models have been widely used to analyze the impact of natural disasters, which are comparable to pandemic/lockdown shocks.

The pandemic/lockdown shocks occurred rapidly, in weeks or months, not gradually over a year or more. In such a short period, adjustments through smooth changes in wages, prices and production methods are not plausible. Rather, initial adjustments occur through changes in quantities, altering demand and supply of commodities and employment in affected sectors. In this environment, we use a linear SAM-multiplier model that specifies a fixed-coefficient production technology, linear demand system, fixed savings rates, and fixed prices.

There are three different kinds of sectoral shocks that are included in the model: (1) changes in demand due to household lockdown, (2) changes in supply due to industry lockdown, and (3) changes in demand due to induced macro shocks. At the detailed industry level, data are provided for all three shocks and the model imposes the largest of the three.

We applied the model on a monthly time step for the period March to June 2020 for four countries: US, UK, Mexico, and South Africa. The models closely replicate observed macro results (GDP and employment) for the period. The results provide detailed structural information on the evolution of the different economies month-by-month and provide a framework for forward-looking scenario analysis.

We also use the SAM-multiplier model to estimate the macro stimulus impacts of policies to support affected households. The model focuses attention on the structural features of the economy that define the multiplier process (who gets the additional income and what do they do with it) and provides a more nuanced analysis of the stimulus impact of income support programs than can be done with aggregated macro models.

Keywords: Mexico, Latin America, North America, United States, USA, Americas, United Kingdom, Europe, South Africa, Southern Africa, Africa South of Sahara, Africa, Coronavirus, Coronavirus Disease, Coronavirinae, COVID-19, Models, Modelling, Pandemics, Economic Impact, Employment, Gross National Product

Suggested Citation

Robinson, Sherman and Levy, Stephanie and Hernández, Victor and Davies, Rob and Hinojosa-Ojeda, Raul and Gabriel, Sherwin and Arndt, Channing and van Seventer, Dirk Ernst and Pleitez, Marcelo, COVID-19 and Lockdown Policies: A Structural Simulation Model of a Bottom-Up Recession in Four Countries (April 19, 2021). IFPRI Discussion Paper 2015 (2021), Available at SSRN: https://ssrn.com/abstract=3829942

Sherman Robinson (Contact Author)

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

Stephanie Levy

London School of Economics & Political Science (LSE) - Department of International Development ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Victor Hernández

National Institute of Statistics and Geography ( email )

Mexico

Rob Davies

United Nations University-World Institute for Development Economics Research (UNU-WIDER) ( email )

Katajanokanlaituri 6B
Helsinki, FIN-00160
Finland

Raul Hinojosa-Ojeda

University of California, Los Angeles (UCLA) ( email )

Sherwin Gabriel

CGIAR - Environment and Production Technology Division ( email )

2033 K Street, NW
Washington, DC 20006
United States

Channing Arndt

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

Dirk Ernst Van Seventer

United Nations - World Institute for Development Economics Research (UNU/WIDER) ( email )

Katajanokanlaituri 6B
Helsinki, FIN-00160
Finland

Marcelo Pleitez

University of California, Los Angeles (UCLA) ( email )

405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States

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