In our research, we exploit variation in both the severity of the pandemic, as well as the speed and duration of NPIs implemented to fight disease transmission across U.S. states and cities. NPIs implemented in 1918 resemble many of the policies used to reduce the spread of COVID-19, including closures of schools, theaters, and churches, bans on public gatherings and funerals, quarantines of suspected cases, and restrictions on business hours.
Our paper yields two main insights. First, we find that areas that were more severely affected by the 1918 Flu Pandemic saw a sharp and persistent decline in real economic activity. Second, we find that cities that implemented early and extensive NPIs suffered no adverse economic effects over the medium term. On the contrary, cities that intervened earlier and more aggressively experienced a relative increase in real economic activity after the pandemic subsided. Altogether, our findings suggest that pandemics can have substantial economic costs, and NPIs can lead to both better economic outcomes and lower mortality rates.
NY Fed link.