Munich Personal RePEc Archive

The COVID-19 Pandemic in a Monetary Schumpeterian Model

He, Qichun (2020): The COVID-19 Pandemic in a Monetary Schumpeterian Model. Forthcoming in: Frontiers of Economics in China

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Abstract

In this paper, we investigate how the presence of the COVID-19 pandemic---the increase in the probability of death, following Blanchard and Fischer (1989)---may affect growth and welfare in a scale-invariant R&D-based Schumpeterian model. Without money, the increase in the probability of death has no effect on long-run growth and a negative effect on welfare. By contrast, when money is introduced via the cash-in-advance constraint on consumption, the increase in the probability of death decreases long-run growth and welfare under elastic labor supply. Calibration shows that the quantitative effect of an increase in the probability of death on welfare is much larger compared to that on growth.

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