Macroeconomic Impacts of COVID-19 and Universal Transfer Programs: The Case of Korea

Abstract

In this paper, we analyze the impacts of COVID-19 and the policy response to it in Korea based on a version of a Macro-SIR model with labor friction, and with multiple types of jobs and households. Due to substantial uncertainty in the model and parameters that govern the interaction between epidemiological and macroeconomic developments, we rely on a prior predictive analysis when simulating the model. We nd that the model successfully predicts an endogenous rise in the number of con rmed cases in the second half of 2020, and a sharp decline in economic activity followed by a temporary recovery caused by the government transfer program. It also turns out that low-wealth households are more damaged from the pandemic due to larger losses in terms of labor income. In addition, it is shown that the consumption multiplier of the universal transfer program is around 0.09.

Keywords: COVID-19, Fiscal Policy, Labor Friction, Universal Transfers, SIR model

JEL Classification: E24, E37, E62, H3, I18, J64