Fighting the coronavirus entails high economic costs. This article advocates building a good simulation model that quantifies both the epidemiological and economic effects of various measures to restrict the contamination. The flow approach to the labour market offers a good starting point for setting up such a dynamic flow model that indicates how the fight against the corona virus can be carried out as efficiently as possible from an economic perspective. It complements the epidemiological SIR models with economic elements. The article provides a prototype model in which possible specification and further refinement is illustrated on the basis of two recently published models. The aim is to focus the model on the Dutch situation in which the consequences of contact-restricting measures (lockdown), but also of the relaxation of those measures, can be closely monitored. The contagion (or ‘contact’) function, which indicates how contagion can increase through matching of infectious and infected persons, is central to this model. Where the policy on the labour market is aimed at minimizing frictions in this matching of job seekers and jobs, the restrictive 'frictions' in the contagion model must be as large as possible to prevent contagion. In this way, the economic costs of various types of lockdowns and of differentiated policies for different groups can be built into the model. These costs can be weighed against the health costs. In addition, the model can indicate how increasing knowledge about the virus infection can lead to changes in policy and what the policy response to the availability of a drug or a vaccine should be.
|Translated title of the contribution||A stock-flow model is needed for economic policy analysis of the corona pandemic.|
|Media of output||Online|
|Publication status||Published - 8 Jun 2020|