Discussion Paper Series 2020-E-14

Necessities, Home Production, and Economic Impacts of Stay-at-Home Policies

Makoto Nirei, Nao Sudo

Stay-at-home (SAH) policy is the most commonly used measure employed around the globe to contain the spreading of Covid-19. While its effectiveness is widely agreed, it comes with a cost of dampening market activities. In this paper, we study theoretically how a SAH policy in one market sector can affect other market sectors, shedding light on the roles of home production and the division of labor across members within a household. We develop a multi-sector general equilibrium model that incorporates multiple types of households consisting of two members, each of whom works differently in the market and at home. We show that the spillover effect arises from the interaction of which market goods are subject to the SAH policy, the degree of luxuriousness of the goods, and the working status of household members. First, spillover effects take place only when the SAH policy is imposed on necessities. Households that consider the good as a necessity allocate a large portion of time to home goods production, causing a reduction of their market labor inputs. Second, the spillover effects on workers are attenuated when their spouse is a homemaker or works for a sector producing goods that have a higher degree of luxuriousness. We also calibrate the model to Japan's data, identifying the size of subsistence points and spousal working status, to study the consequences of a hypothetical scenario in which a SAH policy is imposed on the education sector and discuss the roles of the degree of luxuriousness of goods and the spousal working status.

Keywords: Stay-at-home policies; Home production; Stone-Geary Preference; Sectoral spillover

Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.

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