In this paper, we propose a theoretical model including a susceptible-infected-recovered-dead (SIRD) model of an epidemic in a dynamic macroeconomic general equilibrium framework with agents' mobility. The latter affects both their income and consumption and their probability of infecting and of being infected. Strategic complementarities among individual mobility choices drive the evolution of aggregate economic activity, while infection externalities caused by individual mobility affect disease diffusion. Rational expectations of forward-looking agents on the dynamics of aggregate mobility and epidemic determine individual mobility decisions.
The model allows evaluating alternative scenarios of mobility restrictions, especially policies dependent on the state of the epidemic.
We prove the existence of an equilibrium and provide a recursive construction method for finding equilibrium(a), which also guides our numerical investigations.
We calibrate the model by using Italian experience on COVID-19 epidemic in the period February 2020 - May 2021. We discuss how our economic SIRD (ESIRD) model produces substantially different dynamics of economy and epidemic with respect to a SIRD model with constant agents' mobility. Finally, by numerical explorations, we illustrate how the model can
be used to design an efficient policy of state-of-epidemic-dependent mobility restrictions, which mitigates the epidemic peaks stressing the health system, and allows for trading-off the economic losses due to reduced mobility with the lower death rate due to the lower spread of the epidemic.