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Is There a Trade‐Off between COVID‐19 Control and Economic Activity? Implications from the Phillips Curve Debate

ABSTRACT: In this paper, we argue that the roles of public policies concerning COVID‐19 can be better understood in light of the past discussions on the Great Inflation of the 1970s and the 1980s. Like the Phillips Curve in macroeconomics, the pandemic presents a trade‐off between economic activities and something undesirable, which is, in this case, infection. Like the Phillips Curve, this apparent output‐infection trade‐off is an elusive one and it is lost in the long run. Containing infections calls for decisive policy action. This paper shows that we could design a reaction function, which sets the level of economic activity as a function of the state of infection, in such a way that the possibility of an infection explosion would be eliminated. Our empirical analysis suggests that Tokyo, New York, and London since September 2020 do not satisfy this desirable property.

SUBMITTER: Fukao M

PROVIDER: S-EPMC8441900 | biostudies-literature | 2021 Aug

REPOSITORIES: biostudies-literature

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Project description:The stability of food supply chains is crucial to the food security of people around the world. Since the beginning of 2020, this stability has been undergoing one of the most vigorous pressure tests ever due to the COVID-19 outbreak. From a mere health issue, the pandemic has turned into an economic threat to food security globally in the forms of lockdowns, economic decline, food trade restrictions, and rising food inflation. It is safe to assume that the novel health crisis has badly struck the least developed and developing economies, where people are particularly vulnerable to hunger and malnutrition. However, due to the recency of the COVID-19 problem, the impacts of macroeconomic fluctuations on food insecurity have remained scantily explored. In this study, the authors attempted to bridge this gap by revealing interactions between the food security status of people and the dynamics of COVID-19 cases, food trade, food inflation, and currency volatilities. The study was performed in the cases of 45 developing economies distributed to three groups by the level of income. The consecutive application of the autoregressive distributed lag method, Yamamoto's causality test, and variance decomposition analysis allowed the authors to find the food insecurity effects of COVID-19 to be more perceptible in upper-middle-income economies than in the least developed countries. In the latter, food security risks attributed to the emergence of the health crisis were mainly related to economic access to adequate food supply (food inflation), whereas in higher-income developing economies, availability-sided food security risks (food trade restrictions and currency depreciation) were more prevalent. The approach presented in this paper contributes to the establishment of a methodology framework that may equip decision-makers with up-to-date estimations of health crisis effects on economic parameters of food availability and access to staples in food-insecure communities.

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Is There a Trade‐Off between COVID‐19 Control and Economic Activity? Implications from the Phillips Curve Debate

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