Finance and Economics Discussion Series (FEDS)
August 2020
Supply-Side Effects of Pandemic Mortality: Insights from an Overlapping-Generations Model
Etienne Gagnon, Benjamin Johannsen, and David López-Salido
Abstract:
We use an overlapping-generations model to explore the implications of mortality during pandemics for the economy's productive capacity. Under current epidemiological projections for the progression of COVID-19, our model suggests that mortality will have, in itself, at most small effects on output and factor prices. The reason is that projected mortality is small in proportion to the population and skewed toward individuals who are retired from the labor force. That said, we show that if the spread of COVID-19 is not contained, or if the ongoing pandemic were to follow a mortality pattern similar to the 1918–1920 Great Influenza pandemic, then the effects on the productive capacity would be economically significant and persist for decades.
Accessible materials (.zip)
Keywords: Pandemics, potential output, real wage, equilibrium real interest rate, demographics
DOI: https://doi.org/10.17016/FEDS.2020.060
PDF: Full Paper