Economic costs of distancing policy interventions.

Outbreaks of new viruses are increasingly likely in the warming global climate. In the absence of medical treatments, distancing policy interventions (DPIs) are expected to remain the primary containment strategy. While effective in limiting social interactions and curbing transmission, DPIs also disrupt economic activity. This paper estimates the short-run economic effects of DPIs using monthly macroeconomic indicators from 44 countries during the first year of the COVID-19 pandemic. The main contribution of the paper is that its estimates account for not only the direct (DPI-compliant) but also the indirect (DPI-triggered voluntary) distancing effects of DPI-s, providing greater policy-relevance than earlier estimates neglecting indirect effects. DPI effects are identified in a two-stage empirical design. The first stage leverages a sharp decline in weekly social mobility following initial DPIs to isolate policy-driven behavior. The second stage carries these effects over to monthly indicators (industrial and manufacturing production, construction output, retail trade, inflation, and unemployment) using a difference-in-differences framework. I find substantial output losses attributable to DPIs, while voluntary distancing also contributed, but to a lesser extent. No significant inflationary or unemployment effects are detected. These findings suggest that output losses should be the primary economic concern when implementing distancing interventions in future pandemics.