Investigating the economic and environmental effects of a pandemic and its policy responses: a Bayesian dynamic stochastic general equilibrium model

Pandemics and political responses to them can bring about short- and long-term economic and environmental effects. This paper aimed to understand the effects of a pandemic and the policy responses to it on Iran’s economy and environmental conditions using a Bayesian dynamic stochastic general equilibrium model. The results suggested that a pandemic can decrease the value of macroeconomic variables. In the health sector, a pandemic reduces health capital stock, thereby increasing quarantine hours and household health expenditures. Following an increase in quarantine hours and a decrease in economic activities, air pollution decreases, causing a short-term improvement in the quality of the environment. Moreover, an increase in public health expenditure during a pandemic leads to an accelerated convergence of economic and environmental variables into a steady state. Considering that the positive environmental effects of the outbreak of an infectious disease are short-term, and since industrialization is necessary for economic growth, it is recommended that in order to achieve sustainable development, we should move toward energy-efficient industries and clean fuels and technologies.