Viral Shocks to the World Economy

Discussion Papers 1861, 21, 13 S.

Konstantin A. Kholodilin, Malte Rieth

2020

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Abstract

We construct a news-based viral disease index and study the dynamic impact of epidemics on the world economy, using structural vector autoregressions. Epidemic shocks have persistently negative effects, both directly and indirectly, on affected countries and on world output. The shocks lead to a significant fall in global trade, employment, and consumer prices for three quarters, and the losses are permanent. In contrast, retail sales increase. Country studies suggest that the direct effects are four times larger than the indirect effects and that demand-side dominate supply-side contractions. Overall, the findings indicate that expansionary macroeconomic policy is an appropriate crisis response.

Malte Rieth

Wissenschaftlicher Mitarbeiter in der Abteilung Makroökonomie

Konstantin A. Kholodilin

Wissenschaftlicher Mitarbeiter in der Abteilung Makroökonomie



JEL-Classification: C32;E32;F44;I18
Keywords: Coronavirus, Covid 19, text analysis, world economy, structural vector autoregressions, epidemics