Discussion Paper Details

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Title: On the Optimal "Lockdown" During an Epidemic

Author(s): Martin Gonzalez-Eiras and Dirk Niepelt

Publication Date: April 2020

Keyword(s): COVID-19, Epidemic, Health care system, lockdown, logistic model, Pandemic, Production shortfall, SIR model and social distancing

Programme Area(s): Macroeconomics and Growth and Public Economics

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.

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Bibliographic Reference

Gonzalez-Eiras, M and Niepelt, D. 2020. 'On the Optimal "Lockdown" During an Epidemic'. London, Centre for Economic Policy Research.