Opinion | What 500 years of history tells us about the long-term economic impact of pandemics
- Research shows that past pandemics had no statistically significant impact on real economic growth, inflation, interest rates, exports or wages
- The economy will probably rebound rapidly after Covid-19, given the new monetary tools available – the stock market confidence is far from misplaced
We are now a year into the Covid-19 pandemic and one question remains: when will the global economy recover from what has been called the worst pandemic in over 100 years? Central to the uncertainty surrounding this question are the two very different stories that the financial markets and the real economy have painted.
The best and perhaps only way to understand how long it will take the global economy to recover from the Covid-19 pandemic is to turn to historical precedents. So, we compiled a unique set of 500 years of combined economic data for the United States and Britain, and measured the economic and financial impact of 11 major pandemics, each of which is estimated to have caused at least 100,000 deaths.
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Using the state-of-the-art local projection method developed by Professor Òscar Jordà at the University of California, Davis, we measured the impact of these historical pandemics on key economic variables, including real gross domestic product growth, inflation, real interest rates, export growth and real wage growth. Our data came from three sources: the Bank of England, the US Federal Reserve and global financial data.