A Simple Planning Problem for COVID-19 Lock-down, Testing, and Tracing

We study the optimal lock-down for a planner who controls the fatalities of COVID-19 while minimizing the output costs of the lock-down. The policy prescribes a severe lock-down beginning a few weeks after the outbreak, covering almost 50 percent of the population after a month, with a total duration shy of 4 months. The intensity of the optimal lock-down depends on the gradient of the fatality rate with respect to the infected and the availability of antibody testing, which yields a welfare gain of 2 percent of GDP. We also study test-tracing-quarantine, which we show to be complementary to lock-down. (JEL E23, I12, I15, I18)

The Effects of Monetary and Fiscal Policies on the Output Costs of Sudden Stops

There has been controversy about the appropriate responses of monetary and fiscal policies to sudden stops of capital inflows. There have been concerns that expansionary policies could undermine confidence leading to currency depreciation and a worsening of the crisis. Previous literature has generally found favorable effects from fiscal expansion and mixed results for monetary policy. We revisit this issue using more recent data and alternative measures of monetary policy. We find considerable support for the view that expansionary monetary policy reduces output costs of sudden stops and no significant evidence that the costs are increased. We find that fiscal expansion by countries with low levels of debt is expansionary, but that these effects can become negative at high levels of debt.

The Great Indian Demonetization

On November 8, 2016, India demonetized 86 percent of its currency in circulation. The stated objectives of the move were to seize undeclared income, to destroy counterfeit currency, to speed up formalization of the economy, and to increase the tax base. I find that the evidence over the subsequent three years suggests that the move had limited success in achieving its stated objectives. Disaggregated data suggests that demonetization did have appreciable costs in terms of lost jobs and output. However, the output costs appear to have been temporary.

Fiscal policy and the output costs of sovereign default

We introduce fiscal policy into a sovereign debt model with endogenous default costs and examine the implications for the determination of the output costs of default. We find that the quantitative properties of the output costs of default, and their dependence on primitives such as the elasticity of labor supply, are distinctly different depending on the margin of fiscal adjustment. The consideration of fiscal policy thus has potentially important implications for the quantitative properties of models of sovereign debt and default.