Is There a Trade‐Off between COVID‐19 Control and Economic Activity? Implications from the Phillips Curve Debate

In this paper, we argue that the roles of public policies concerning COVID‐19 can be better understood in light of the past discussions on the Great Inflation of the 1970s and the 1980s. Like the Phillips Curve in macroeconomics, the pandemic presents a trade‐off between economic activities and something undesirable, which is, in this case, infection. Like the Phillips Curve, this apparent output‐infection trade‐off is an elusive one and it is lost in the long run. Containing infections calls for decisive policy action. This paper shows that we could design a reaction function, which sets the level of economic activity as a function of the state of infection, in such a way that the possibility of an infection explosion would be eliminated. Our empirical analysis suggests that Tokyo, New York, and London since September 2020 do not satisfy this desirable property.