Working Paper

Supply-Side Effects of Pandemic Mortality: Insights from an Overlapping-Generations Model

Abstract: We use an overlapping generation 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.

Keywords: Pandemics; Potential output; Real wage; Equilibrium real interest rate; Demographics; COVID-19;

JEL Classification: E21; E27; E43;

https://doi.org/10.17016/FEDS.2020.060

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2020-08-19

Number: 2020-060