The Macroeconomics of Testing and Quarantining

Martin S. Eichenbaum, Sergio Rebelo, Mathias Trabandt

NBER Working Paper No. 27104
Issued in May 2020, Revised in April 2021
NBER Program(s):Economic Fluctuations and Growth, Health Economics

We develop a SIR-based macroeconomic model to study the impact of testing/quarantining and non-pharmaceutical interventions (NPIs) on health and economic outcomes. These policies can dramatically reduce the costs of an epidemic. Absent testing/quarantining, the main effect of NPIs on health outcomes is to delay, rather than reduce, epidemic-related deaths. NPIs reduce the severity of the epidemic-related recession but prolong its duration. There is an important synergy between NPIs and testing/quarantining. NPIs buy time for PIs to come to the rescue. The benefits of testing/quarantining are even larger when people can get reinfected, either because the virus mutates or immunity is temporary.

Supplementary materials for this paper:

• Matlab/Dynare replication codes are available at the following URL

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w27104