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Some Short-run Macroeconomic Considerations as Society Deals with a Once-in-Generations Pandemic

Author

Listed:
  • Arslan Razmi

    (Department of Economics, University of Massachusetts Amherst)

Abstract
COVID-19 constitutes a health crisis which has rapidly turned into a social and economic crisis. This paper briefly explores some of the issues raised by the combination of a massive supply-side shock with a massive demand-side shock, and the interaction of these with the exponential dynamics of a viral infection. The analysis suggests that, during the recovery, the state of infection among the existing workforce relative to that of the incoming one will play an important role in determining the dynamic interactions between economics and epidemiology. Perhaps counterintuitively, the logic of the basic epidemiological SI model suggests that, under plausible assumptions about consumer behavior, steady recovery is helped if the re-hired workers are more heavily infected than the existing workforce. This has implications for the fiscal strategies that are likely to be pursued in the coming months. In particular, fiscal instruments should simultaneously target aggregate demand and disease transmissibility in relatively small steps. There is no restoring economic health without stabilizing economic sentiments, the path to which goes through communicating a reasonable degree of control over pathogen spread.

Suggested Citation

  • Arslan Razmi, 2020. "Some Short-run Macroeconomic Considerations as Society Deals with a Once-in-Generations Pandemic," UMASS Amherst Economics Working Papers 2020-04, University of Massachusetts Amherst, Department of Economics.
    • Handle: RePEc:ums:papers:2020-04
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    File URL: https://scholarworks.umass.edu/econ_workingpaper/287/
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    Citations

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    Cited by:

    1. Peter Flaschel & Giorgos Galanis & Daniele Tavani & Roberto Veneziani, 2021. "Pandemics and Aggregate Demand: a Framework for Policy Analysis," Working Papers PKWP2101, Post Keynesian Economics Society (PKES).
    2. Pintu Parui, 2021. "A simple macro‐model of COVID‐19 with special reference to India," Metroeconomica, Wiley Blackwell, vol. 72(4), pages 650-678, November.
    3. Peter Flaschel & Giorgos Galanis & Daniele Tavani & Roberto Veneziani, 2021. "Pandemics and Aggregate Demand: a Framework for Policy Analysis," Working Papers PKWP2025, Post Keynesian Economics Society (PKES).

    More about this item

    Keywords

    Epidemiological models; COVID-19; aggregate demand; aggregate supply; fiscal policy.;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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