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Optimal Lockdown in an Epidemiological-Macroeconomic Model

Author

Listed:
  • Paul Levine

    (University of Surrey and CIMS)

  • Neil Rickman

    (University of Surrey)

Abstract
This paper sets out a coherent framework for studying the economic effects of the Covid-19 pandemic, and policies aimed at controlling both the health and economic trade-offs that it poses. It does this by combining two key epidemiological and macroeconomic models: the SIR model and the RBC model. We argue that much of the present literature can be understood using this framework. The SIR-type epidemiology model in the paper has the novel feature of both no-disease and endemic steady states, two possible outcomes of Covid-19. The stability properties of these equilibria are examined and are shown to depend on the reproduction number and also, possibly, on the complex dynamics introduced by `predator-prey' behaviour of the virus. In addition, we show how endogenous social interaction fits within the model. Lockdown - reducing the size of the susceptible population - is then introduced into the RBC model as a social planner's problem. By linking this epidemiolgy model with a simple RBC model, we provide an integrated framework for examining the economic effects of Covid-related policies and the economic cost of lockdown policies of particular scope and duration. In principle an empirical implementation of this framework can be used to deduce the price of a life implied by a particular lockdown policy. Looking forward, extensions of our framework offer the chance to study economic challenges in areas such as debt financing, human capital shocks, or vaccine production and roll-out, all of which are inevitably emerging.

Suggested Citation

  • Paul Levine & Neil Rickman, 2021. "Optimal Lockdown in an Epidemiological-Macroeconomic Model," School of Economics Discussion Papers 0421, School of Economics, University of Surrey.
    • Handle: RePEc:sur:surrec:0421
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    File URL: https://repec.som.surrey.ac.uk/2021/DP04-21.pdf
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    References listed on IDEAS

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    1. Elisei Leonov, 2023. "Neural Network-Based Numerical Analysis of the Impact of Pandemic Shocks in Three-Sector DSGE Model," Russian Journal of Money and Finance, Bank of Russia, vol. 82(4), pages 80-107, December.

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    More about this item

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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