Estimates of a ‘Pandemic Taylor rule’ loss function

ABSTRACT

This article applies a central bank-style loss function to policymaker decision-making during the Covid-19 pandemic. An empirical Taylor rule-style model is used to estimate preference weights associated with lost economic activity and Covid-19 cases and deaths for the four largest US states. Results demonstrate that there are preference differences across states with Republican-led states placing greater weight on economic loss than do those with Democrat governors. Moreover, all states in the sample responded to changes in Covid over the sample period.

KEYWORDS:

• Covid-19
• health loss function
• policymaker preferences

JEL CLASSIFICATION:

• E61
• H75
• I18

Acknowledgments

I would like to thank Martina Gottwald-Belinić, Mark Taylor, and two anonymous referees for comments which undoubtedly improved the paper as did discussion in seminars at the University of Montana and the University of Zagreb. Any existing shortcomings are mine alone.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ This is lower than the non-pandemic labour force participation rate. In October 2021 about 4.6% of US workers in the 24–54 age category were not in the labour force because either they voluntarily exited the labour force or their employer closed or lost business due to Covid (Bureau of Labor Statistics 2021).

² There is an ongoing discussion of the date of the first Covid death in the US, but new evidence suggests it was in January 2020, see Mueller (2021).