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On the Optimal "Lockdown" During an Epidemic

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Abstract

We embed a lockdown choice in a simplified epidemiological model and derive formulas for the optimal lockdown intensity and duration. The optimal policy reflects the rate of time preference, epidemiological factors, the hazard rate of vaccine discovery, learning effects in the health care sector, and the severity of output losses due to a lockdown. In our baseline specification a Covid-19 shock as currently experienced by the US optimally triggers a reduction in economic activity by two thirds, for about 50 days, or approximately 9.5 percent of annual GDP.

Suggested Citation

  • Martin Gonzalez-Eiras & Dirk Niepelt, 2020. "On the Optimal "Lockdown" During an Epidemic," Working Papers 20.01, Swiss National Bank, Study Center Gerzensee.
    • Handle: RePEc:szg:worpap:2001
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    1. Martin S Eichenbaum & Sergio Rebelo & Mathias Trabandt, 2021. "The Macroeconomics of Epidemics [Economic activity and the spread of viral diseases: Evidence from high frequency data]," The Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5149-5187.
    2. James H. Stock, 2020. "Data Gaps and the Policy Response to the Novel Coronavirus," NBER Working Papers 26902, National Bureau of Economic Research, Inc.
    3. Fernando E. Alvarez & David Argente & Francesco Lippi, 2020. "A Simple Planning Problem for COVID-19 Lockdown," NBER Working Papers 26981, National Bureau of Economic Research, Inc.
    4. repec:aei:rpaper:1008561701 is not listed on IDEAS
    5. Andrew Atkeson, 2020. "What Will be the Economic Impact of COVID-19 in the US? Rough Estimates of Disease Scenarios," Staff Report 595, Federal Reserve Bank of Minneapolis.
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    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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