The Dynamic Impact of Epidemic Shock on China’s Macro Economy from the Household Heterogeneity Perspective: Simulation Analysis Based on COVID-19 Data

We aim to develop a dynamic stochastic general equilibrium model for simulating the economic implications of COVID-19 in China. Our approach involves incorporating a negative health shock into the supply side of the macroeconomy, enabling us to effectively simulate the dynamic impact of an epidemic shock on China’s economy. The findings indicate that the short-term impact of the epidemic shock on output and household consumption is more pronounced compared to employment, investment, and capital. Furthermore, the negative effects on employment and consumption are higher for the infected population than for the susceptible population due to the epidemic shock. Simultaneously, the epidemic’s influence on household income exacerbates its adverse effect on consumption while leading to a temporary rebound in employment. Changes in both the magnitude of the epidemic shock and the proportion of individuals infected with the virus exert a substantial impact on firm and household behavior. In brief, based on China’s economic data, it is evident that the epidemic shock exhibits the most pronounced adverse effect on output, followed by consumption and employment.