Analysis of the Effect of Health Disaster Risk Shocks on Macroeconomic Variables: An Application of Dynamic Stochastic General Equilibrium Models

The outbreak of COVID-19 has led to widespread use of mathematical models of epidemiology. These models have a fundamental defect, because they do not consider the interaction between economic decisions and rates of infection. Therefore, the main motivation of the present study is to understand the severity of the effect of health shock on Iran’s oil economy using a Dynamic Stochastic General Equilibrium model. After calibrating the parameters based on the quarterly information of Iran's economy during the period of 1991-2016, the adjusted model has been simulated in three scenarios, based on the persistence of health disaster risk and the deterioration of health capital due to the disease outbreak. The results show that the occurrence of a health disaster risk shock by a standard deviation caused severe fluctuations in macroeconomic and health variables. On the other hand, with the reduction of production and health status, the development path of Iran's economy has been challenged. According to the research findings, it is recommended that the government, as a policy-maker, play a stabilizing role under pandemic crises conditions.