Modelling the Effects of a Health Shock on the Armenian Economy

Abstract

This paper extends the closed economy DSGE model in order to evaluate the impact of the coronavirus on the economy. Our model makes it clear that people,s decisions to reduce consumption and working hours due to the health crisis lead to an economic recession. As a result, the spread of the virus declines. Expansionary monetary policy decreases the size of GDP decline, but it is costly in terms of public health. This result shows that there is a trade-off between the output loss caused by the epidemic and the health consequences of the epidemic.