Studies show that the economic effect of coronavirus can last decades

Courtesy: UC Davis.

Economies can suffer from coronavirus exposure for decades, say economists at the University of California, Davis, who have studied the financial consequences of pandemics since the 14th century.

“If, after COVID-19, the trends develop in a similar way – taking into account the scale of this pandemic – the global economic trajectory will be very different from the expected just a few weeks ago,” the authors wrote in working paper published this week. "Pandemics are followed by long periods – over several decades – of depressing investment opportunities."

Oscar Jorda, Sanjay Singh and Alan M. Taylor, all professors at the Department of Economics, concluded in their paper that a pandemic is likely to lead to a decrease in the real rate of return, to a small increase in real wages and to investment. The real rate of return is the annual percentage of return on investment adjusted for inflation.

The Longer-Term = Economic Consequences of Pandemics document was published on the Internet by the San Francisco Financial Reserve Bank, where Chorda is a senior political adviser. The study was also reported at and other media.

Researchers studied macroeconomic reactions to historical pandemic events using data collected by historians and economists over many years, and measured economic indicators at an annual frequency in cities, regions, and countries from the 14th century to the present.

Economists examined 12 major pandemics in which more than 100,000 people died. They also looked at armed conflicts in which a comparable number of people died.

“Significant macroeconomic consequences of pandemics persist for approximately 40 years, while real rates of return are substantially reduced. On the contrary, we find that wars do not have such an effect, on the contrary, ”the authors say in their article.

They said that pandemics are usually followed by depressive investment opportunities, perhaps because of an increased desire to save, perhaps because of increased safety savings, or because people are trying to restore depleted wealth.

According to the researchers, after a pandemic, the natural interest rate has been declining for decades, reaching its lowest level around 20 years later. After about four decades, the natural rate returns to the level that one would expect pandemic did not take place. The natural interest rate is the interest rate that supports the economy at full employment and maximum productivity while maintaining constant inflation.

The main disclaimer defined economists is that past pandemics occurred at a time when people did not live to old age. “Black death and other epidemics hit the population with a huge mass of an age pyramid of up to 60 years, so this time everything could be different,” they said.

According to economists, in new models there is a decline caused by coronavirus

Additional Information:
The long-term economic consequences of pandemics, San Francisco Federal Reserve Bank Working Paper Series (2020). DOI: 10.24148 / wp2020-09

Studies show that the economic consequences of coronavirus can last for decades (2020, April 3)
Received April 4, 2020

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