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Pandemic and containment policies in open economy

Author

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  • Liang, Yousha
  • Shi, Kang
  • Tang, Junjie
  • Xu, Juanyi

Abstract

This paper analyzes the economic and epidemiological externalities of containment policies in an open-economy setting with firm entry and exit, SIR virus transmission, and a production network. Motivated by empirical evidence that non-pharmaceutical intervention policies (such as workplace closure or social distancing) are substitutes for medication-related policies (healthcare facilities and vaccine development), we incorporated four types of containment policies into our model. We find the workplace closure policy is the most effective in pandemic management, and social distance is a beggar-thy-neighbor strategy. Furthermore, we evaluate the efficacy of existing policy combinations and compare them to the optimal policy choice in the cooperative and Nash equilibrium, and a “prepare-for-worst” situation. Inter-country policy collaboration allows each country to specialize in different policies while also improving overall welfare. Real-world policies differ from optimum policies in the cooperative and Nash equilibrium, but they are closer to the second-best policies in the “prepare-for-worst” scenario, in which the U.S. policies cannot be predicted.

Suggested Citation

  • Liang, Yousha & Shi, Kang & Tang, Junjie & Xu, Juanyi, 2022. "Pandemic and containment policies in open economy," Journal of International Money and Finance, Elsevier, vol. 125(C).
  • Handle: RePEc:eee:jimfin:v:125:y:2022:i:c:s0261560622000407
    DOI: 10.1016/j.jimonfin.2022.102637
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    Cited by:

    1. Chen, Hongyi & Tillmann, Peter, 2023. "Lockdown spillovers," Journal of International Money and Finance, Elsevier, vol. 137(C).

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    More about this item

    Keywords

    Pandemic; Containment policies; Open economy; Policy coordination;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development

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