Modelling the Economic Impact of the COVID-19 Pandemic Using SIR and DSGE Frameworks

The COVID-19 pandemic caused not only deterioration of health and well-being of the world population but a global economic shock with enormous consequences. This paper is focused on the modelling of the pandemic shock using the combination of SIR model and DSGE framework. The objective of this paper is to transfer the COVID-19 shock into the economic model and simulate the effect of this shock given different model parameters. The epidemic is introduced into the economic framework through dividing population by individuals’ health status (Susceptible, Infected, Recovered) and simulating changes in the behaviour of the economic agents as they internalise the probability of being infected. The results of model simulation demonstrate how these behaviour changes affect macroeconomic variables and the flow of the pandemic. Moreover, the simulations include different scenarios with various parameter changes, for example, the mortality rate of the decease, and comparison of the macroeconomic variables dynamics given different parameters.