The Macroeconomics of Testing and Quarantining

We develop a SIR-based macroeconomic model to study the impact of testing/quarantining and non-pharmaceutical interventions (NPIs) on health and economic outcomes. These policies can dramatically reduce the costs of an epidemic. Absent testing/quarantining, the main effect of NPIs on health outcomes is to delay, rather than reduce, epidemic-related deaths. NPIs reduce the severity of the epidemic-related recession but prolong its duration. There is an important synergy between NPIs and testing/quarantining. NPIs buy time for PIs to come to the rescue. The benefits of testing/quarantining are even larger when people can get reinfected, either because the virus mutates or immunity is temporary.