Abstract:
We embed a lockdown choice in a simplified epidemiological model and derive formulas for the optimal lockdown intensity and duration. The optimal policy re- ects the rate of time preference, epidemiological factors, the hazard rate of vaccine discovery, learning effects in the health care sector, and the severity of output losses due to a lockdown. In our baseline specification a Covid-19 shock as currently expe- rienced by the US optimally triggers a reduction in economic activity by two thirds, for about 50 days, or approximately 9:5 percent of annual GDP.