Susceptible-Infected-Recovered (SIR) Dynamics of COVID-19 and Economic Impact

TL;DR

This paper models COVID-19's spread using the SIR framework, revealing rapid transmission, healthcare overload risks, and economic impacts, while evaluating mitigation policies' effects on health and markets.

Contribution

It estimates a heterogeneous SIR model for COVID-19, quantifies peak infection levels, and assesses economic impacts of mitigation strategies.

Findings

28% of population infected at peak without mitigation

Optimal policies reduce peak infection to 6.2%

Stock market drops 50% in baseline, with a W-shaped recovery under mitigation

Abstract

I estimate the Susceptible-Infected-Recovered (SIR) epidemic model for Coronavirus Disease 2019 (COVID-19). The transmission rate is heterogeneous across countries and far exceeds the recovery rate, which enables a fast spread. In the benchmark model, 28% of the population may be simultaneously infected at the peak, potentially overwhelming the healthcare system. The peak reduces to 6.2% under the optimal mitigation policy that controls the timing and intensity of social distancing. A stylized asset pricing model suggests that the stock price temporarily decreases by 50% in the benchmark case but shows a W-shaped, moderate but longer bear market under the optimal policy.