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An estimate of the cost of lockdown

A new working paper by researchers at University of Copenhagen and CEPI uses transaction data from a large bank in Scandinavia to estimate the effect of social distancing laws on consumer spending in the COVID-19 pandemic.

The analysis exploits a natural experiment to disentangle the effects of the virus and the laws aiming to contain it: Denmark and Sweden were similarly exposed to the pandemic but only Denmark imposed significant restrictions on social and economic activities. The study estimates that aggregate spending dropped by around 25 percent in Sweden and by 4 additional percentage points in Denmark as a result of the shutdown. This implies that most of the economic contraction is caused by the virus itself and occurs regardless of whether governments mandate social distancing or not.

Link to the paper here.

Posted by Maria Perrotta Berlin

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