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The Macroeconomic Effects of Lockdown policies

Author

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  • Aurélien Eyquem

    (GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique)

Abstract
A tractable incomplete-market model with unemployment, sticky prices, and a fiscal side is used to quantify the macroeconomic effects of lockdown policies and the miti-gating effects of raising government spending and implementing UI benefit extensions. We find that the effects of lockdown policies, although we are relatively conservative about the size of the lockdown, are huge: unemployment doubles on impact and al-most triples even for relatively short lockdown durations. Output falls dramatically and debt-output ratios increase by several tens of percentage points. In addition, the surge in unemployment risk triggers a rise in precautionary savings that make such shocks Keynesian supply shocks: aggregate demand falls by more than aggregate supply, and lockdown policies are deflationary. Unfortunately, we find that raising public spending and extending UI benefits stimulate aggregate demand or improve risk-sharing but has little effects on output and unemployment, although they do alleviate the welfare losses of lockdown policies for the households.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Aurélien Eyquem, 2020. "The Macroeconomic Effects of Lockdown policies," Post-Print halshs-02910895, HAL.
    • Handle: RePEc:hal:journl:halshs-02910895
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    2. Gerson Javier Pérez-Valbuena & Paula Barrios, 2022. "Subnational fiscal accounts under pressure: the effects of COVID-19 in a developing country," Documentos de trabajo sobre Economía Regional y Urbana 306, Banco de la Republica de Colombia.
    3. Julien Albertini & Xavier Fairise & Arthur Poirier & Anthony Terriau, 2022. "Short-Time Work Policies During the Covid-19 Pandemic," Annals of Economics and Statistics, GENES, issue 146, pages 123-172.
    4. Ze Chen & Yuan Wang & Yanjun Guan & Michael Jie Guo & Rong Xu, 2023. "Long‐term effect of childhood pandemic experience on medical major choice: Evidence from the 2003 severe acute respiratory syndrome outbreak in China," Health Economics, John Wiley & Sons, Ltd., vol. 32(5), pages 1120-1147, May.
    5. Anasuya Haldar & Narayan Sethi, 2022. "The Economic Effects Of Covid-19 Mitigation Policies On Unemployment And Economic Policy Uncertainty," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 25(Special I), pages 61-84, March.
    6. Janiak, Alexandre & Machado, Caio & Turén, Javier, 2021. "Covid-19 contagion, economic activity and business reopening protocols," Journal of Economic Behavior & Organization, Elsevier, vol. 182(C), pages 264-284.
    7. Hinterlang, Natascha & Moyen, Stephane & Röhe, Oke & Stähler, Nikolai, 2023. "Gauging the effects of the German COVID-19 fiscal stimulus package," European Economic Review, Elsevier, vol. 154(C).
    8. Luca Gori & Cristiana Mammana & Piero Manfredi & Elisabetta Michetti, 2022. "Economic development with deadly communicable diseases and public prevention," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(5), pages 912-943, October.
    9. Hwang, Tienyu, 2021. "Coronavirus lockdown and virus suppression: An international analysis," Technological Forecasting and Social Change, Elsevier, vol. 170(C).
    10. Michael D. Noel, 2022. "Competitive survival in a devastated industry: Evidence from hotels during COVID‐19," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(1), pages 3-24, February.
    11. Mohimont, Jolan & de Sola Perea, Maite & Zachary, Marie-Denise, 2024. "Softening the blow: Job retention schemes in the pandemic," Journal of Public Economics, Elsevier, vol. 238(C).
    12. Porto, Edoardo Di & Naticchioni, Paolo & Scrutinio, Vincenzo, 2022. "Lockdown, essential sectors, and Covid-19: Lessons from Italy," Journal of Health Economics, Elsevier, vol. 81(C).
    13. Andrei Nutas, 2021. "What Can the EU's Response to the COVID Crisis Tell us About our Values?," Journal for Social Media Inquiry, Editura Lumen, vol. 3(1), pages 32-49, July.

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    More about this item

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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