NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Taojun Xie

Asia Competitiveness Institute
Lee Kuan Yew School of Public Policy
National University of Singapore
18 Evans Road
Singapore 259364
Singapore
Tel: +65 6516 2541

E-Mail: tjxie@nus.edu.sg
Institutional Affiliation: National University of Singapore

NBER Working Papers and Publications

April 2020Macroeconomic Dynamics and Reallocation in an Epidemic
with Dirk Krueger, Harald Uhlig: w27047
In this paper we argue that endogenous shifts in private consumption behavior across sectors of the economy can act as a potent mitigation mechanism during an epidemic or when the economy is re-opened after a temporary lockdown. Extending the theoretical framework proposed by Eichenbaum-Rebelo-Trabandt (2020), we distinguish goods by their degree to which they can be consumed at home rather than in a social (and thus possibly contagious) context. We demonstrate that, within the model the "Swedish solution" of letting the epidemic play out without government intervention and allowing agents to shift their sectoral behavior on their own can lead to a substantial mitigation of the economic and human costs of the COVID-19 crisis, avoiding more than 80 of the decline in output and of number of ...
 
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