Macroeconomic consequences of pandexit

BIS Working Papers  |  No 932  | 
15 March 2021
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 |  54 pages



The end of the Covid-19 pandemic may be within sight following the gradual rollout of vaccinations globally. However, unexpected setbacks could still disrupt the "pandexit" process and put the global recovery at risk. For example, the pace of vaccination progress in various countries and regions is uneven and may face roadblocks; virus mutations could also bring a new set of challenges. What are the macroeconomic implications should these risks materialise? This is a vital question to consider when designing macroeconomic policies during the pandexit. Addressing it requires a joint analysis of epidemiology and economics. The challenge is to have a data-driven framework that is simple to implement, yet can flexibly accommodate a range of scenarios and country context.


This paper proposes a simple and flexible epidemiological-economic framework to assess the economic outlook during the pandexit. The epidemiological bloc extends the classic SEIR model to allow for variable infection and death rates, as well as vaccination and possible reinfection due to virus mutations. The economic bloc describes how the society balances between lives and livelihood. A fast and robust algorithm is introduced to match the model to daily health and mobility data. Several pertinent scenarios are analysed, but many more could be built. Regular updates of the results are available online, together with open-source codes.


Under the baseline scenario, the median output loss across 27 economies in 2021 is about 2.25% of pre-pandemic trends. This assumes no further spikes in infection rate and sustained vaccination progress. In the downside scenario of slow vaccinations or a surge in infection rates, median output loss could grow to between 3 and 3.75%. The most severe scenario entails virus mutations that result in the loss of immunity, including among those vaccinated. In this case, median output loss could reach 5% in 2021 alone, and activity restrictions may persist in subsequent years.


This paper proposes a quantitative framework to analyse the interactions between epidemiological and economic developments, and assesses the macroeconomic impact of managing the late stage of the Covid-19 pandemic. The framework features a susceptible-exposed- infectious-recovered (SEIR)-type model that describes the pandemic evolution conditional on society's mobility choice, and a policy unit that chooses mobility optimally to balance lives and livelihood objectives. The model can be matched to daily data via a fast and robust empirical procedure, allowing a timely policy analysis as situations evolve. As of 10 March 2021, the projected median output loss across 27 advanced and emerging market economies in 2021 is about 2 1/4% of pre-pandemic trends. This projected outcome hinges on a sustained progress in vaccination and no major epidemiological setbacks. Vaccination impediments or a third-wave surge in infection rate could raise median output loss to 3 - 3 3/4%. In the most severe scenario, virus mutations that compromise existing immunity could require more protracted lockdowns. In this case, median output loss may reach 5% in 2021 alone, with further repercussions in subsequent years.

For code for updating results please visit:

JEL codes: E00, I18

Keywords: Covid-19 pandemic, health-economic tradeoffs, SEIR model, lockdown, vaccines