Keywords
macroeconomics fluctuations
pandemics
economy of Puerto Rico
macroeconometrics
How to Cite
Abstract
This paper studies the potential dynamic impact of COVID-19 in Puerto Rico from the perspective of the indirect cost of the disease. For these purposes, a health shock is introduced into a calibrated DSGE model as proposed by Torój (2013). The macroeconomic effects of this shock are simulated when the disease spreads expectedly and unexpectedly. Simulation results indicate that the spread of the disease can result in aggregate output contractions ranging from 1.8% to 5.4%. If the virus is not contained in that same period, this contraction can have a persistence of up to eight quarters and result in permanent contractions of up to 2% under no lockdown measures and conservative disease spread scenarios. This implies a significant indirect cost related to the spread of the disease if social distancing measures were not put in place or were to be lifted. At the same time, the importance of continuing to mitigate the negative economic impact of lockdown measures through expansive fiscal policy is highlighted.References
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