Macroeconomic Risks Across the Globe due to the Spanish Flu

Abstract

By employing a non-linear model in a country panel setting, we quantify as sizeable the expected output loss and macroeconomic risks due to the Great Influenza Pandemic in 1918-1920 (known also as Spanish Flu). Moreover, the Spanish flu caused an increase in income inequality across countries. The expected real income loss is twice as large for lower income countries and the risks associated to the pandemic, if large for higher income countries, are immense for lower income countries. As for the United States, the estimated expected output fall due to the Spanish flu is small, but the macroeconomic risks are not negligible. The historical experience suggests that, in the case of a pandemic outbreak, massive policy support is needed domestically to avoid the materialization of adverse tail risks and globally to address growing inequality across countries.