COVID-19 will likely restructure economic activity in a variety of ways, and lead to the growth of some firms and the decline of others. This column uses stock markets to examine these effects as share prices are tied to expectations about future earnings growth. On days with large pandemic-related market moves, there is enormous dispersion in firm-level returns. Using firms’ pre-pandemic regulatory filings, which describe sources of future earnings risk, it uncovers dozens of relevant risks associated with lower or higher returns, including direct exposure to social distancing and indirect effects arising from substitution effects and supply-chain linkages.
The economic policies of the US in the post-COVID era will have important implications for the global economy. This column outlines two different exit strategies for the US from the COVID-related debt-overhang and analyses their implications for emerging markets and global stability. A strategy of continuing loose fiscal policies and accommodating monetary policies may spur short-term growth but would also increase the risks a deeper crisis in the future. Alternatively, the US could adopt a two-pronged approach of shifting fiscal priorities towards expenses with high social payoffs and then promoting fiscal adjustments aimed at a primary surplus and debt resilience. The post-WWII success story illustrates the feasibility of, and gains from, a two-pronged fiscal strategy.
Facing the economic consequences of the Covid-19 pandemic, governments all over the world are considering providing a fiscal stimulus. A potentially powerful instrument to do so is a broad-based consumption tax such as VAT. This column argues that changes in VAT may have some effect in stimulating spending on certain consumer durable goods such as household appliances. However, these effects may be heterogenous across different product types and the timing and perceived credibility of the announcements are also important factors for policymakers to consider.
This year’s annual report of the European Fiscal Board provides new evidence that the EU fiscal framework does not deliver the goods. This column argues that it should be reformed without delay. As forging consensus among EU member states takes time, the activation of the general escape clause until end-2021 offers a window of opportunity to build a simpler, leaner and more effective fiscal contract. The year 2019 illustrated once again how EU member states largely failed to build buffers in good times, those very buffers that would have been welcome in the face of the Covid-19 shock. In 2019, and despite sustained economic growth, the aggregate EU government deficit has increased for the first time since 2011 while cases of non-compliance with the preventive arm of the Stability and Growth Pact (SGP). Like other common shocks before, the pandemic has exposed three long-standing gaps in EMU’s architecture: (1) the lack of a genuine and permanent central fiscal capacity; (2) adverse incentives to maintain or scale up growth-enhancing government expenditure; (3) an intractable set of rules and benchmarks poorly tailored to country-specific debt reduction needs and capacities.
The World Health Organization recommended a range of preventative behaviours to protect the public from COVID-19. This column examines how familiar and compliant the adult population of seven European countries were with WHO’s recommendations. Using individual-level data from 7,000 respondents to an online survey conducted in April 2020, the study finds that information from WHO in the context of COVID-19 was well trusted and largely followed, with heterogeneities by recommendation type, country, and individual level characteristics such as region, age, gender, and education.
Other Recent Columns:
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- Hard and soft skills in vocational training
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- Trust and compliance with public health policies in the time of COVID-19
- Inactive workers and mortality due to Covid-19: Evidence from Italy
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- Words versus deeds: How central banks manage expectations
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- Self-preferencing by gatekeeper platforms: Implications for digital regulation
- The Fed’s new policy framework: A major improvement but more can be done
- Quantitative easing policies and exchange rates
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- Exposure to Fox News hindered social distancing in the US
- Managing post-Covid sovereign debts in the euro area
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- Lockdowns and voting behaviour during the COVID-19 pandemic
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