The Long Economic Hangover of Pandemics

• Author: Òscar Jordà, Sanjay R. Singh, and Alan M. Taylor
• Position: ÒSCAR JORDÀ is senior policy advisor at the Federal Reserve Bank of San Francisco and professor of economics at the University of California, Davis. SANJAY R. SINGH is an assistant professor of economics at the University of California, Davis. ALAN M. TAYLOR is a professor of economics and finance at the University of California, Davis.
• Pages: 12-15

12 FINANCE & DEVELOPMENT | June 2020

he ong conomic

angover of

ANDEMIC

History shows COVID-19’s economic fallout

may be with us for decades

Òscar Jordà, Sanjay R. Singh, and Alan M. Taylor

he COVID-19 pandemic’s toll on

economic activity in recent months

is only the beginning of t he story.

While the rapid and unprecedented

collapse of production, trade, and employment may

be reversed as the pandemic eases, historical d ata

suggest that long-term econom ic conseque nces

could persist for a generation or more.

Among these are a prolonged period of depressed

real interest rates— akin to secu lar stagnation—

that may linger for two dec ades or more. Still, one

piece of good news is that these su stained periods of

low borrowing costs are as sociated with higher real

wages and create ample room for governments to

nance stimulus mea sures to counteract economic

damage caused by the pandemic.

Research on the economic fa llout of the ongoing

COVID-19 pandemic has so far natura lly focused

on the short-term impacts from mitigation and

containment strategies. However, as governments

engage in large-sc ale counter-pandemic scal

programs, it is important to underst and what the

economic landscape wil l look like in the years

and decades to come. at land scape will shape

monetary and sca l policy in ways that are not yet

fully understood.

A look at previous pandemics, going back to t he

Black Death in the 1300s, c an help ll this gap

by shedding light on their medium- to long-term

economic eects. In extr apolating from historical

trends, though, it’s important to note one crucial

distinction. Past pandemic s such as the Black

Death occurred at times when virtua lly no one

survived to old age. With today’s longer life spans,

perhaps this time may be dierent: COVID-19

mortality appea rs to disproportionately aect the

elderly, who typically no longer participate in the

labor force and tend to save more than the young.

Pandemics and macroeconomics

Historical studies h ave typically focu sed on one

event, in one country or region, and have traced