VoxEU & CEPR Coverage of the Covid-19 Global Pandemic

The cleansing effect of banking crises

Reint Gropp, Steven Ongena, Jörg Rocholl, Vahid Saadi, 07 August 2020

Recessions are periods of low opportunity costs for time and resources, and hence can facilitate a productivity-enhancing reallocation of resources and improve productivity growth. However, recessions can also slow productivity growth by intensifying credit frictions, for instance, through the accumulation of legacy assets in the banking sector. This column investigates the interaction between these two channels in the recent banking crisis and shows that US regions with more restructuring of inefficient banks during the post-Global Crisis recession experienced higher productivity growth in the real sector in subsequent years.

The heterogeneous transmission of ECB policies

Giancarlo Corsetti, Joao B. Duarte, Samuel Mann, 07 August 2020

A persistent challenge for the ECB has been meeting the various needs and demands of euro area member states. This column provides empirical and quantitative evidence suggesting that the transmission of the ECB’s monetary policy varies significantly across member states. For variables such as those related to housing and labour markets, the dispersion of responses to a monetary shock is twice as large as the average response. The results also suggest that the disruption to market integration brought about by the COVID-19 crisis may create further challenges to conducting monetary policy in the euro area.

Support for small businesses amid COVID-19

Charles Goodhart, Dimitri Tsomocos, Xuan Wang, 07 August 2020

A sizeable proportion of enterprises, especially SMEs, in receipt of financial assistance from the government will fail to repay. This column asks whether, and to what extent, it may be beneficial to apply a screening mechanism to deter those mostly likely to fail to repay from seeking financial assistance in the first place. The answer largely turns on the relative weights attached for the objectives of stabilisation as compared with allocative efficiency.

Global politics from the view of the political-economy trilemma

Joshua Aizenman, Hiro Ito, 07 August 2020

The political-economy trilemma, introduced by Dani Rodrik (2000), asserts that the three policy goals of national sovereignty, democracy, and globalisation, cannot all be achieved to the full extent simultaneously. This column investigates this trilemma by developing indexes that measure the extent of attainment of the three factors during 1975-2016. It finds that there is a linear relationship between globalisation and national sovereignty (i.e. a dilemma) for industrialised countries, while all three indexes are linearly correlated (i.e. a trilemma) for developing countries.

Mass gatherings contributed to early COVID-19 mortality

Alexander Ahammer, Martin Halla, Mario Lackner, 06 August 2020

Social distancing is important to slow the community spread of COVID-19. This column studies the banning of mass gatherings, a comparably low-cost intervention. Exploiting exogenous variation in top-flight basketball and ice hockey games in the US, which arise due to the leagues' predetermined schedules, and the suspension of the 2019-20 seasons, it estimates the impact of indoor mass gatherings on COVID-19 mortality in affected US counties. The findings suggest that one additional mass gathering increased the cumulative number of COVID-19 deaths in affected counties by 9%.

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