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The Great Lockdown: information, noise and macroeconomic fluctuations

Author

Listed:
  • Michał Brzoza-Brzezina
  • Grzegorz Wesołowski
Abstract
This paper argues that noisy information about lockdown can cause undesired economic fluctuations. We construct a New Keynesian model with imperfect information about how long the lockdown would last. On the one hand, a false information about the lockdown being persistent (which we call fear of lockdown) lowers consumption, investment, employment and output. We show that the fear of lockdown may account for more than half of the decline in economic activity caused by the lockdown itself. On the other hand, a true information about lockdown being introduced can also be misinterpreted and hence cause an impact on the economy being smaller than desired by the authorities. These undesired fluctuations can be reduced if communication about lockdown policy is precise, for which our policy conclusion calls

Suggested Citation

  • Michał Brzoza-Brzezina & Grzegorz Wesołowski, 2021. "The Great Lockdown: information, noise and macroeconomic fluctuations," KAE Working Papers 2021-060, Warsaw School of Economics, Collegium of Economic Analysis.
    • Handle: RePEc:sgh:kaewps:2021060
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    File URL: http://kolegia.sgh.waw.pl/pl/KAE/Documents/WorkingPapersKAE/WPKAE_2021_060.pdf
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    Keywords

    Covid-19; lockdown; communication; imperfect information;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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