Business Cycle and Health Dynamics during the COVID-19 Pandemic. A Scandinavian Perspective

Abstract

We use a unique daily economic activity measure and manually audited nonpharmaceutical intervention indexes for Norway and Sweden to model the dynamic interaction between COVID-19, policy, health, and business cycles within a SVAR framework. Our analysis documents large measurement errors in commonly used containment policy measures, significant endogeneity between the model’s variables, and a strong health-economy trade-off following both policy shocks and precautionary actions. We further document that a large share of the variation in containment policies is driven by news innovations, and explore via counterfactual simulations the nexus between the Norwegian and Swedish experiences.