1. Publications
  2. NBER Working Paper, 27430/2020
cover_NBER-paper_w27430_Trabandt.jpg
published in : Journal of Economic Dynamics and Control

Epidemics in the Neoclassical and New Keynesian Models

We analyze the effects of an epidemic in three standard macroeconomic models. We find that the neoclassical model does not rationalize the positive comovement of consumption and investment observed in recessions associated with an epidemic. Introducing monopolistic competition into the neoclassical model remedies this shortcoming even when prices are completely flexible. Finally, sticky prices lead to a larger recession but do not fundamentally alter the predictions of the monopolistic competition model.

23. September 2020

Authors Martin S. Eichenbaum Sergio Rebelo Mathias Trabandt

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Keywords

epidemic modeling Investments macroeconomic modelling recession competition

JEL Classification

E10 H00 I10

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