To freeze or not to freeze? Epidemic prevention and control in the DSGE model using an agent-based epidemic component

Abstract

The ongoing COVID-19 pandemic has raised numerous questions concerning the shape and range of state interventions the goals of which are to reduce the number of infections and deaths. The lockdowns, which have become the most popular response worldwide, are assessed as being an outdated and economically inefficient way to fight the disease. However, in the absence of efficient cures and vaccines, there is a lack of viable alternatives. In this paper we assess the economic consequences of the epidemic prevention and control schemes that were introduced in order to respond to the COVID-19 pandemic. The analyses report the results of epidemic simulations that were obtained using the agent-based modelling methods under the different response schemes and their use in order to provide conditional forecasts of the standard economic variables. The forecasts were obtained using the dynamic stochastic general equilibrium model (DSGE) with the labour market component.