Macroeconomics and epidemiology

An application of the SIR-Macro model for the state of Roraima

Abstract

In this work, we use the SIR-Macro model developed by Eichenbaum et al. (2020), which is an extension of the epidemiological SIR model by Kermack and McKendrick (1927), to analyze how economic decisions influence the development of epidemics such as Covid-19 and the economic impacts of adopting public containment policies. To do so, using data from the state of Roraima to calibrate the model, we simulate the scenario of an optimal containment policy and compare the results with the simulation of the competitive equilibrium of the model, where no containment policy is adopted. The results show that the adoption of a containment policy significantly reduces the number of infected and dead, but generates a comparatively larger economic recession than that generated in the competitive equilibrium scenario. On the other hand, the non-adoption of a containment policy does not extinguish the economic recession, as agents reduce their levels of consumption and labor supply to reduce their exposure and chances of being infected by the virus. Moreover, in this scenario, the number of infected and dead is significantly higher.