Abstract

A number of studies confirmed that COVID-19 considerably reduced consumption and employment while it is not clear why people reduced the consumption. Epidemics and economics theories suggest people may refrain from consumption and labor supply because of fear of infection and/or economic uncertainty. The simple SVAR implicates that the infection played important roles while economic uncertainty did not. However, economic uncertainty becomes important when we incorporate the epidemics model and stochastic volatility into the SVAR.