Macroeconomics

Monetary policy

Business cycle

Shock (circulatory)

Supply shock

Demand shock

Economics

New Keynesian economics

Computer science

Deflation

Coronavirus disease 2019 (COVID-19)

Keynesian economics

Recession

Politics

Political science

Monetary economics

Macro

Infectious disease (medical specialty)

Internal medicine

Sociology

Medicine

Programming language

Consumption (sociology)

Investment (military)

Disease

Trough (economics)

Pathology

Social science

Journal of Economic Dynamics and Control

This paper documents the behavior of key macro aggregates in the wake of the Covid epidemic. We show that a unique feature of the Covid recession is that the peak-to-trough decline is roughly the same for consumption, investment, and output. In contrast to the 2008 recession, there was only a short-lived rise in financial stress that quickly subsided. Finally, there was mild deflation between the peak and the trough of the Covid recession. We argue that a New Keynesian model that explicitly incorporates epidemic dynamics captures these qualitative features of the Covid recession. A key feature of the model is that Covid acts like a negative shock to the demand for consumption and the supply of labor.

Epidemics in the New Keynesian model