Epidemics in the New Keynesian Model / Martin S. Eichenbaum, Sergio Rebelo, Mathias Trabandt.

Format:

Book

Author/Creator:

Eichenbaum, Martin S.

Contributor:

National Bureau of Economic Research.

Rebelo, Sergio.

Trabandt, Mathias.

Series:

Working Paper Series (National Bureau of Economic Research) no. w27430.

NBER working paper series no. w27430

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

This paper documents the behavior of key macro aggregates in the wake of the Covid epidemic. We show that a unique feature of the Covid recession is that the peak-to-trough decline is roughly the same for consumption, investment, and output. In contrast to the 2008 recession, there was only a short-lived rise in financial stress that quickly subsided. Finally, there was mild deflation between the peak and the trough of the Covid recession. We argue that a New Keynesian model that explicitly incorporates epidemic dynamics captures these qualitative features of the Covid recession. A key feature of the model is that Covid acts like a negative shock to the demand for consumption and the supply of labor.

Notes:

Print version record

June 2020.