Webinar by Maria del Rio

Date: 17 December, 2020,  15:30h (CET, GMT+1, Barcelona/Madrid/Paris/Berlin)

Speaker: Maria del Rio-Chanona, Institute for New Economic Thinking and Mathematical Institute, University of Oxford

Title:  "The economic impact of the COVID-19 pandemic: A non-equilibrium network model"

Link to the video of the webinar:

https://www.youtube.com/watch?v=lNaQQGDBRA8&list=PLf7A47_ENtnLkXJ8QPspRIT5a0zz-1nPd&index=7

 

Abstract: 

We develop a non-equilibrium production network model for predicting the economic impact of the COVID-19 pandemic. In the first part of this work, we made quantitative predictions of first-order supply and demand shocks for the U.S. economy associated with the COVID-19 pandemic at the level of individual occupations and industries. To analyze the supply shock, we classify industries as essential or non-essential and construct a Remote Labor Index, which measures the ability of different occupations to work from home. Demand shocks are based on a study of the likely effect of a severe influenza epidemic developed by the US Congressional Budget Office. Compared to the pre-COVID period, these shocks would threaten around 20% of the US economy’s GDP, jeopardise 23% of jobs and reduce total wage income by 16%. We then design an economic model to address the unique features of the COVID-19 pandemic. Our model also includes a production function that distinguishes between critical and non-critical inputs, inventory dynamics, and feedback between unemployment and consumption. We demonstrate that economic outcomes are very sensitive to the choice of the production function, show how supply constraints cause strong network effects, and find some counter-intuitive effects, such as that reopening only a few industries can actually lower aggregate output. Our results suggest that there may be a reasonable compromise that yields a relatively small increase in R0 and delivers a substantial boost in economic output. This corresponds to a situation in which all non-consumer facing industries reopen, schools are open only for workers who need childcare, and everyone who can work from home continues to work from home.