Browsing by Author "Eichenbaum, Martin"
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- Expectations, infections, and economic activityPublication . Eichenbaum, Martin; Matos, Miguel Godinho de; Lima, Francisco; Rebelo, Sergio; Trabandt, MathiasThis paper develops a quantitative theory of how people weigh the risks of infections against the benefits of engaging in social interactions that contribute to the spread of infectious diseases. Our framework takes into account the interrelated yet distinct ef- fects of public policies and private behavior on the spread of the disease. We evaluate the model using a novel micro data set on consumption expenditures in Portugal. The estimated model accounts for the cross-sectional consumption response of individuals of different ages at a given time, as well as the time-series response of consumption of the young and old across the first three waves of Covid. Our model highlights the critical role of expectations in shaping how human behavior influences the dynamics of epidemics.
- How do people respond to small probability events with large, negative consequences?Publication . Eichenbaum, Martin; Matos, Miguel Godinho de; Lima, Francisco; Trabandt, Mathias; Rebelo, SergioWe study how people react to small probability events with large negative consequences using the outbreak of the COVID-19 epidemic as a natural experiment. Our analysis is based on a unique administrative data set with anonymized monthly expenditures at the individual level. We find that older consumers reduced their spending by more than younger consumers in a way that mirrors the age dependency in COVID-19 case-fatality rates. This differential expenditure reduction is much more prominent for high-contact goods than for low-contact goods and more pronounced in periods with high COVID-19 cases. Our results are consistent with the hypothesis that people react to the risk of contracting COVID-19 in a way that is consistent with a canonical model of risk taking.