Soon to be published study in the American Economic Journal: Macroeconomics quantifies trade-off of containment measures during Covid-19

The authors find that incidence shocks in Covid-19 infections, accounting for unexpected changes in the transmission of the coronavirus due to, for example, super-spreader events or non-mandatory mask wearing, and shocks in containment policies, reflecting exogenous variation in nonpharmaceutical interventions, have large and persistent effects on mobility, morbidity, and mortality lasting for one to two months.

Method and Data

Econometrician Annika Camehl and her co-author used a Bayesian panel structural vector autoregressive model. They considered daily data (on Covid-19 cases, deaths, a containment policy index, an economic mobility index and local stock prices) for 44 countries between 12 December 2019 and 17 August 2020. The researchers measured the containment policy by using the Oxford COVID-19 Government Response Tracker. Economic mobility is measured by an index showing how visits and length of stay at different places change compared to a baseline. The data set covered 81% of global cases and fatalities due to Covid-19 and 72% of world GDP.

Findings

The researchers managed to document some remarkable findings. They consistently find that incidence shocks explain between 40-60% of economic mobility, morbidity, and mortality. Policy shocks account for 20-30% while mobility shocks are rather unimportant. Incidence shocks increases the number of infected persons at peak by 40% and raises mortality by 30%.  A typical economic mobility shock increases mortality only by up to 6%. Restrictive containment policy shocks lower infections by 20% on average across countries after one month.

Camehl and her co-author also quantified the implied policy trade-off between health and economic mobility. The researchers’ estimates imply that reducing economic mobility by one percentage point per day through tighter policy lowers mortality by 8% after three months.

The researchers on the findings:

All in all, the results indicate that two factors, the autonomous biological process and nonpharmaceutical interventions, are relevant for understanding infections and economic mobility patterns during a pandemic. The importance of the first factor is consistent with the findings of Atkeson et al. (2020b), who document similar progressions of the pandemic in many countries despite widely differing initial conditions. The relevance of the second factor indicates that good policy is decisive for good health outcomes (Fernández-Villaverde and Jones 2020), and that a relevant part of the observed changes in mobility can be attributed to mandatory social distancing (Gupta et al. 2020).