Protecting Lives and Livelihoods with Early and Tight Lockdowns

IMF Working Papers, November 8, 2020

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Using high-frequency proxies for economic activity over a large sample of countries, the paper shows the economic crisis during the first seven months of the COVID-19 pandemic was only partly due to government lockdowns.
Economic activity also contracted because of voluntary social distancing in response to higher infections.
Lockdowns can substantially reduce COVID-19 infections, especially if introduced early in a country's epidemic.
Despite short-term economic costs, lockdowns may pave the way to a faster recovery by containing the spread of the virus and reducing voluntary social distancing.
Lockdowns entail decreasing marginal economic costs but increasing marginal benefits in reducing infections, suggesting that tight short-lived lockdowns are preferable to mild prolonged measures.

The economic contraction in the first seven months of the COVID-19 pandemic is attributable to both government-imposed lockdowns and voluntary social distancing triggered by higher infection rates.
Early implementation of lockdowns substantially reduces COVID-19 infections.
Marginal economic costs of lockdowns decrease as stringency or duration increases, while marginal health benefits (infections avoided) increase.
Policy inference: tight, short-lived lockdowns are preferable to mild, prolonged measures based on the pattern of decreasing marginal economic costs and increasing marginal benefits in infection reduction.

Introduce lockdowns early in a country's epidemic to maximize infection reduction.
Favor tight, short-lived lockdowns over mild, prolonged measures to balance economic costs and health benefits.
Recognize that voluntary social distancing amplifies economic contractions when infections rise; controlling infections can thus mitigate voluntary reductions in economic activity and support a faster recovery.

Evidence is derived from high-frequency proxies for economic activity across a large sample of countries.
Timeframe emphasized: the first seven months of the COVID-19 pandemic.
Main subjects include COVID-19, Economic growth, Economic recession, Health, Labor, National accounts, Private savings, Unemployment rate.