Sungbae An Comments on The Global Macroeconomic Impacts of COVID-19: Seven Scenarios

Sungbae An, Korea Institute for International Economic Policy: The COVID-19 pandemic sheds unprecedented light on how to incorporate health shocks into macroeconomic models. Previous literature on diseases, as summarized in the paper, focuses largely on the economic welfare effects of long-term public health conditions and chronic illnesses linked to mortality and disability. There are a number of reasons for the dominance of these approaches. First, the evaluation of consequences is readily available through traditional labor supply channels. When a part of the labor force is affected by a disease, additional labor costs arise from the temporary loss of working hours by patients and care-givers, medical costs until recovery, and possible long-term deficiency in productivity due to mortality and disability. In this case, the epidemiological literature can estimate the impact of disease on the population and labor force, and it is introduced as an exogenous labor productivity shock to macroeconomic models. Second, long historic data on such diseases are available across countries, so empirical evidence is relatively well established. Often, cohort and panel data for long-term chronic disease, combined with dietary variables, are available in many advanced economies, which helps identify the empirical significance of health shocks.