A map of the world with incidence circles

The first months of 2020 brought the world to an almost complete standstill due to the occurrence and outbreak of the SARS-CoV-2 coronavirus, which causes the highly contagious COVID-19 disease. Despite the hopes that rapidly developing medical sciences would quickly find an effective remedy, the last two years have made it quite clear that, despite vaccines, this is not very likely. As a result, government interventions that were aimed at reducing the number of infections and deaths have become one of the basic tools that were used all around the world in order to limit the negative effects of the pandemic.

The lockdowns and social distancing measures proved to be highly efficient in limiting the disease transmission, however, with high economic costs that were not fully understood. In response to this problem, in a series of papers (1) and (2), we have developed a new line of research that addressed the most important questions concerning the use of lockdown and social distancing policies:

 - Should we freeze an economy in order to decrease the pace of SARS-CoV-2 transmission or not?

 - What should the scale and composition of an efficient lockdown policy look like?

 - Are social distancing and lockdowns still necessary after the introduction of vaccines and after-recovery immunity?

These questions were answered using a dynamic stochastic general equilibrium (DSGE) model with an agent-based epidemic component (ABM). This methodology constituted a new approach to the problem and demonstrated its high potential for further use by providing a reasonable assessment of different epidemic scenarios. It provided clear benefits and straightforward transformations compared to the traditional approach of epidemic models as it provided for the introduction of much more elaborate dynamics of the disease, including the consequences of the spatial distribution of people and their social mobility. As a result, the methodology that was used in our papers enabled us to recreate a number of realistic prevention and control schemes and to assess their potential impact on a number of major macroeconomic indicators such as output, investments, capital and unemployment rates.

The research provided meaningful results. Firstly, we showed that the introduction of prevention and control schemes significantly reduces both the death toll and the overall level of economic disturbance compared to the scenarios in which the persistent spread of COVID-19 is allowed. The decrease in economic activity in the case of lockdowns are deeper but more compacted than in the case of the unlimited spread of the virus in which the pace of economic growth and capital accumulation is permanently lowered, although societies under lockdown have to cope with persistent and high unemployment rates.

Secondly, the adopted methodology enabled us to compare the efficiency of two major lockdown strategies: one in which a lockdown is immediate and deep enough to curtail the transmission of infections versus an approach in which a lockdown is gradually introduced. It was found that the probability that gradual changes are deep enough to stop the spread of the coronavirus is relatively low, which results in the extension of the period that precedes the actual lockdown when an economy is already suppressed but no advances are observed in terms of a decrease in the pace of the virus spread. According to our results, this period is detrimental from an economic point of view and thus an economy would be better off if the lockdown was introduced in an immediate yet efficient way. Implementing cyclical abrupt lockdowns appeared to be a better option than following a gradual lockdown strategy. This observation was of major importance as it was in contrast to the widespread belief that we should strive to keep an economy at least partially open as long as possible.

Finally, our analyses, which were presented in (2), showed that the introduction of vaccines and after-recovery immunity do change the dynamics of the contagion and reduce the adverse effects of a pandemic on an economy. However, the consecutive pandemic waves have developed some self-limiting characteristics due to the low vaccination coverage rate in many economies around the world, which means that it is still difficult to develop 'herd immunity'. Even when vaccines are available, the disease remains a constant feature of the economic landscape, which causes losses in economic welfare.

The introduction of vaccines in the analyses did not change the main conclusions of our previous research on the effective use of lockdown policies. We showed that the changes in labour productivity that were caused by the spread of disease still lead to negative changes in the macroeconomic aggregates. Despite the fact that the magnitude of these changes is much smaller than in the case in which people did not vaccinate at all, the pandemic still depresses economic activity over a relatively long period of time. As the resulting economic fluctuations are not very abrupt, strategies that promote vaccinations do permit the economic costs of the pandemic to be reduced in terms of output losses, capital depreciation and unemployment. On the other hand, under these strategies full economic recovery after the peak of the pandemic wave does not occur. This situation is caused by the fact that even when vaccination rates are relatively high there still exist a significant group of people who are vulnerable to infection, become ill and temporarily restrained in their ability to work (or die).

A lockdown strategy causes bigger decreases in productivity, output and capital, which are accompanied by increases in unemployment in the initial phase when harsh constraints on personal and economic activity are introduced. On the other hand, as the constraints are lifted, an economic recovery is observed. That recovery is a representation of the "creative destruction" phenomenon, which leads to the occurrence of microcycles of capital working towards an improvement of the economic perspectives after a lockdown. As a result, lockdowns do not extend the duration of a recession, which confirms that they are still a viable alternative in the fight against an epidemic.

[1] Kaszowska-Mojsa, J.; Włodarczyk, P. To Freeze or Not to Freeze? Epidemic Prevention and Control in the DSGE Model Using an Agent-Based Epidemic Component. Entropy 2020, 22(12), 1345.

[2] Kaszowska-Mojsa, J.; Włodarczyk, P.; Szymanska, A. Immunity in the ABM-DSGE Framework for Preventing and Controlling Epidemics - Validation of Results. Entropy 2022, 24(1), 126.

Jagoda Kaszowska-Mojsa is a Research Fellow in the Mathematical Institute, Oxford. This research was funded within the MACROPRU project. This project has received funding from the European Union's Horizon 2020 research and innovation programme under the Marie Skłodowska–Curie grant agreement No 101023445.

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