March 2020

Woloszko, Causa, 31 March 2020

Rising house prices are causing a housing affordability crisis in many countries, but at the same time they are increasing homeowners’ wealth. Governments are faced with the challenge to encourage households to build up housing wealth while also fostering access to good-quality affordable housing. This column shows that, across OECD countries, those countries with higher homeownership rates display much lower wealth inequality, but argues that encouraging homeownership will not help low- and middle-income families accumulate wealth and are likely to conflict with other important policy objectives.

Vaitilingam, 31 March 2020

With severe lockdowns in place across much of the world to counter the spread of the coronavirus, the IGM Forum at Chicago Booth invited its panel of leading US economists to express their views on interactions between containment measures and economic activity, and the need for public investment to support the medical response to the health emergency. This column reveals a strong consensus among the experts that abandoning lockdowns prematurely will cause greater economic damage in the longer term. There is also unanimity on the need for more US government spending on expanding treatment capacity: building temporary hospitals, accelerating testing, making more masks and ventilators, and providing financial incentives for the production of a successful vaccine.

Levy Yeyati, 31 March 2020

Dollar shortages and the real consequences of the COVID pandemic may lead to the next wave of emerging market debt crises. This column argues that Fed swaps mitigate this shortage only for a few selected countries, and traditional international financial institutions’ products are ill-designed to assist an emerging market facing a sudden stop. As a broker between central banks and emerging economies, the IMF has a unique opportunity to complete the international financial architecture and fill the lender of last resort role that has long eluded it.

Holm, Paul, Tischbirek, 31 March 2020

Empirical evaluations of monetary policy have traditionally focused on the responses of macroeconomic aggregates. Instead, this column uses detailed administrative data from Norway to uncover substantial heterogeneity in the effects of monetary policy at the household level. The authors find that not only low-liquidity households but also high-liquidity ones show strong responses. Interest rate changes faced by borrowers and savers feed into consumption, and indirect effects of monetary policy are sizable, but occur with a delay. While the results confirm several predictions of recent heterogeneous-agent New Keynesian models, they also provide new challenges.

Fujita, Moscarini, Postel-Vinay, 30 March 2020

The COVID-19 pandemic represents an unprecedented shock to labour markets. This column argues that the policy response should balance two objectives: (1) facilitating prompt reallocation of employment to essential activities during the emergency, and (2) maintaining workers’ attachment to their previous employers, preserving the aggregate stock of firm-specific human capital, and avoiding persistent mismatch, which would propagate the temporary shock into a prolonged stagnation. The authors make concrete labour market policy proposals and compare them with measures currently being implemented on both sides of the Atlantic.

Martínez Turégano, 30 March 2020

The large differences in labour productivity across EU countries go a long way towards explaining their divergent living standards. To help explain variations in labour productivity, this column focuses on firm size and finds an overall positive relation between firm size and labour productivity. Countries with a distribution skewed to smaller firms – particularly in Southern Europe – show significantly depressed productivity performance. Improving judicial and government efficiency could help stimulate productivity growth in these member states.

Varian, 30 March 2020

Several recent studies have considered the impact of automation on labour demand in the coming decades. But demand is only one side of the labour market – the supply of labour will also change dramatically in the next 50 years due to demographic effects. This column discusses how the net outcome for wages and employment will depend on the relative magnitude of these shifts in demand and supply. The supply-side effects due to demographic forces appear likely to be somewhat greater than the demand-side changes due to automation for at least the next decade, and possibly longer.

Banerjee, Breza, Duflo, Kinnan, 30 March 2020

The idea of poverty traps being important for microenterprises is captured in the adage “it takes money to make money”. This column reports on a study following households in India exposed to different levels of microfinance. The findings reveal that microfinance has potentially transformative impacts for some entrepreneurs – especially those who without it were stuck in a poverty trap. However, for other households the effect is very small, suggesting that microlenders should consider more screening of households in order to provide some larger loans.

Miles, 30 March 2020

In response to the current economic crisis, central banks have embarked on operations to purchase huge quantities of government bonds. Accusations that these policies amount to ‘printing money’ or ‘helicopter drops’ are unfounded and misleading. This column argues that the asset purchase operations undertaken when interest rates are very low can help greatly in stabilising the economy. These actions allow governments to issue long-term bonds, incur low effective costs in the near horizon, and avoid volatile financial markets. 

Weder di Mauro, Wyplosz, 30 March 2020

Since the onset of the Covid outbreak, the economics profession has been extraordinarily reactive on traditional and social media. This column introduces “Covid Economics, Vetted and Real-Time Papers”, a collection of research papers from CEPR which will bring together more formal investigations, based on explicit theory and/or empirical evidence, to improve knowledge.

Fos, Hamdi, Kalda, Nickerson, 29 March 2020

The growth of the gig economy has renewed debates about how to regulate employers who provide neither health insurance nor social security benefits to their employees. Using a combination of Uber product launch dates and employee-level data on job separations, this column finds that employees who are laid off from their formal occupations but have access to Uber are less likely to rely on unemployment insurance. Instead, gig labour provides a safety net as they search for more permanent work in the formal market.

De Vito, Gomez, 29 March 2020

The coronavirus pandemic has endangered the liquidity position of not only SME firms, but also large listed firms. This column uses firm-level data from 26 countries to study how long it may take for these listed firms to become cash constrained, and what kind of interventions would be most effective. It concludes that while bridge loans would cost governments almost twice as much as a six-month tax deferral, the policy seems justified given the higher efficacy in preventing a global cash crunch. 

Barwell, Chadha, Grady, 29 March 2020

Doing ‘whatever it takes’ does not mean the Bank of England has to undermine long-run monetary and financial stability. This column outlines the options faced by the Bank of England in supporting the economy during the COVID-19 Crisis including closer coordination with fiscal policy.

Hughes, 29 March 2020

The coronavirus outbreak requires action from governments around the world. This includes policies to protect the health of citizens and to support the economy, all while safeguarding governments’ financial stability. This column draws on experiences from past viral outbreaks to outline ten lessons for calibrating the correct policy response. Funding for health care systems should be prioritised, and targeted support for households and businesses is crucial. The rising costs and decreasing revenues for governments will also be challenging, and will likely require assistance from central banks as well as international and regional institutions. 

Venâncio, Barros, Raposo, 29 March 2020

Corporate tax is often seen as a constraint to entrepreneurial activity. This column uses evidence from a tax reform in Portugal to study the relationship between corporate taxes and the behaviour of entrepreneurs. Lower corporate taxes improve both the quantity and quality of entrepreneurial activity, inducing larger and more productive firms to the market, which are more likely to survive in the long term. The study suggests that, on average, the entrepreneurs who were able to take advantage of the reform are mostly male, relatively older, and well-educated individuals.

Canning, Bloom, 29 March 2020

Coronavirus is already widespread but the true number of cases in the population may be as much as 50 or 100 times the number currently testing positive. This column argues that we need accurate population-level numbers if we want to make reasonable policy decisions. It suggests that a random sample of 5,000 people is large enough to pin down the prevalence of COVID-19 infection, and will improve our understanding of transmission and of how prevention measures are working.

Belloc, Buonanno, Drago, Galbiati, Pinotti, 28 March 2020

Italy has been hit particularly badly by the COVID-19 pandemic and has one of the highest case fatality rates. High levels of intergenerational interaction in the country have been identified as a potential contributor to this. This column cautions against drawing policy implications from simple cross-country correlation analysis. It argues instead that sound empirical analysis using detailed and harmonised microdata at the European level should be conducted to analyse the effectiveness of policy interventions. 

Fungáčová, Kerola, Weill, 28 March 2020

Trust in banks is a core determinant of financial system effectiveness. While it is well-established that trust in banks fell sharply following the Global Crisis and affected individual decision-making and risk preferences, the longer-term impact of banking crises on trust in banks has not yet been explored. This column looks at the effect of experiencing a banking crisis on people’s long-term confidence in banks. It shows that living through a banking crisis diminishes trust in banks, especially for more mature individuals, and that the loss of trust is long-lasting. 

Angelici, Profeta, 28 March 2020

The outbreak of coronavirus has led to a huge increase in ‘smart working’ across the world, but little is known about the economic effects of this mode of working. This column uses an experiment with workers in a large, traditional company in the multi-utility sector in Italy to show that the introduction of smart working can have a positive effect on productivity, wellbeing and work-life balance. By removing the rigidity related to particular hours of work, it may contribute to reducing gender gaps in the labour market.

Ilzetzki, 28 March 2020

The economic damage from the COVID-19 pandemic is already tangible. In response, fiscal and monetary policies have been introduced by many major economies. This column discusses results from a latest Centre for Macroeconomics survey on the policies best suited for dealing with the economic crisis in the UK. Broad consensus exists on the need to support households and businesses, through unemployment benefits, credit support, and direct transfers. Likewise, a substantial share of economists agree that higher public debt burdens should not be a concern in the process of supporting the economy.

Ornelas, 28 March 2020

Countries worldwide are implementing lockdown measures to contain the COVID-19 pandemic. Very soon, the question will be how to lift the lockdowns while keeping the epidemic in check. This column uses basic economic principles to shed light on the key trade-offs. A central message is that there is no ‘health versus economics’ dichotomy. Rather, some degree of lockdown is typically optimal in a crisis like this, balancing economic costs against health benefits. Moreover, the optimal level of lockdown is dynamic, changing over time and eventually becoming more lenient.

Gros, 28 March 2020

The increasingly draconian measures that European governments have put in place to control the spread of COVID-19 have been taken without reliable information on the true spread of the disease. This column argues that it would be possible to quickly organise an EU-wide survey test of a representative sample of the entire population using an existing panel of European households. This would yield key data on the spread of the disease, for example by showing whether suppression is still possible. Having reliable data which are comparable across countries would also be indispensable for any exit strategy from the internal border controls which have proliferated as the crisis spread.

Bini Smaghi, 28 March 2020

Since the outbreak of COVID-19 in Europe, calls have been made by academics, politicians and observers to adopt Eurobonds to finance the actions needed to support economic activity. This column argues that the proposal poses two important political challenges. The first is to promote a broad transfer of economic and social competences from the national to the European level. The second is to reform the European Stability Mechanism and ensure that a sufficient number of countries apply so as to avoid stigma.

Perotti, 27 March 2020

Years of quantitative easing by the ECB have suppressed sovereign yields to historic lows. This has contributed to a shadow banking boom, as market participants invested heavily in various private asset constructions. This column argues that the coronavirus shock poses a serious liquidity risk for the shadow banking sector, where significant funding has been extended on the basis of cash flow rather than real collateral. Avoiding financial panic is key, and will require liquidity support as well as targeted fiscal measures. 

Fouka, Mazumder, Tabellini, 27 March 2020

From 1915 to 1930, 1.5 million African Americans moved from the southern US to northern urban centres. This column uses that shift as a historical case study, investigating how the appearance of a new migrant group affects the integration of previous generations of immigrants. It finds that the arrival of African Americans increased the effort exerted by Southern and Eastern Europeans to assimilate, but that Western and Northern Europeans, who were regarded as culturally closer to the native-born white population, had an easier time integrating. 

Galeotti, Surico, 27 March 2020

The fight against COVID-19 is lacking two important weapons: full awareness of populations (especially carriers) and knowledge of the individual traits that are most likely to identify a carrier. This column introduces a ‘user guide to COVID-19’ – a package of resources which offer a narrative of events and present the trade-offs inherent in any policy option. It also appeals for more data collection and statistical analyses.

Bloom, Bunn, Chen, Mizen, Smietanka, 27 March 2020

The spread of COVID-19 has created an important new source of concern for firms. This column reports the findings of the latest Decision Maker Panel survey of UK CFOs, which show that businesses expected the spread of the virus to have a large impact on their sales over the next year. The impacts on sales were expected to be material across all sectors, but businesses in accommodation and food, leisure and transport services expected to be most severely impacted. The survey also suggests that COVID-19 is now a more important source of uncertainty than Brexit for most UK businesses.

Goodhart, Pradhan, 27 March 2020

The authorities, like most of the rest of us, have been caught short by the sudden advent of the coronavirus pandemic, and are rightly rushing to limit unnecessary deaths. But in doing so, they are imposing a massive supply shock. This column asks what will happen when the lockdown gets lifted and recovery ensues, following this period of massive fiscal and monetary expansion. It argues that we will see a surge in inflation that can only be tackled once indebtedness has been restored to viable levels.

Perotti, 27 March 2020

Enrico Perotti tells Tim Phillips that while regulatory reform means that banks are unlikely to be at risk, the coronavirus shock poses a serious liquidity risk for the shadow banking sector, where significant funding has been extended on the basis of cash flow rather than real collateral. Avoiding financial panic is key, and will require liquidity support as well as targeted fiscal measures.

Trebesch, 27 March 2020

In international crises, disasters and wars, private lenders disappear. But governments have stepped in and lent far more to each other than we previously thought. Christoph Trebesch tells Tim Phillips that new data on  200 years of official lending may contain unexpected good news for countries crippled by Covid-19.

Reichlin, Schoenmaker, 26 March 2020

Fiscal and monetary policy coordination is not working in the euro area. This column argues that in order to rebalance the weight of both during major crises, the asymmetry between decision making at the ECB (by majority voting) and the ESM (by unanimity or qualified majority) must be harmonised. This is urgent since the ESM is the only instrument available to provide the common fiscal capacity needed to fight the COVID-19 pandemic.

de Ruijter, Beetsma, Burgoon, Nicoli, Vandenbroucke, 26 March 2020

An initiative to create centralised control of medical countermeasures at the EU level would solve many coordination issues in times of crisis. However, a unified European response faces a number of legal and political obstacles. This column uses a survey conducted before the COVID-19 outbreak to understand EU citizens’ attitudes towards a joint solidarity programme. It suggests considerable support already exists for an effective policy framework centralising the procurement, stockpiling, and allocation of medicines. 

Baldwin, 26 March 2020

The economic and medical fight against COVID-19 are linked, as Mathias Dewatripont and a team of virologist pointed out on VoxEU recently. The linchpin is testing. This column argues that testing is critical to (1) reducing the economic pain of the current COVID-19 wave, and (2) reducing the pain of the second wave that some epidemiologists are expecting. The US and Europe should be investing massively in testing capacity.

Berglöf, Farrar, 26 March 2020

The COVID-19 pandemic is a two-pronged health and economic crisis, and requires a two-pronged response. Ahead of an extraordinary meeting of G20 Leaders, this letter signed by 20 economists and global health experts has one simple message: this crisis is global and requires unprecedented cooperation across countries and disciplines.

Yashiv, 26 March 2020

The use of helicopter money has been proposed to help combat the economic repercussions of the COVID-19 pandemic. The policy has been seen as blasphemy until now, and this column presents a political economy plan to break the taboo. The creation of emergency authority for central banks and the formation of a COVID policy committee could help establish the policy as a one-off, emergency money-financed plan, giving the central bank the authority to act quickly and then revert to the ‘no money-printing’ norm as the crisis subsides.

Gradzewicz, 26 March 2020

Capital investment at firm level can have both short-run and long-run effects on labour productivity. This column uses evidence from Poland to explore the relationship further. It is clear that different types and sizes of firms, from various sectors, demonstrate a range of trends. What is notable is that the impact of ‘learning by doing’ runs deep and affects the initial decision process of the capital investment itself. 

Danielsson, Macrae, Vayanos, Zigrand, 26 March 2020

Many comparisons have been made between the coronavirus crisis and the global systemic crisis in 2008. This column argues that seen through the lens of exogenous and endogenous risk, these two crises are quite different. Coronavirus is unlikely to cause a global systemic crisis, and the policy response should be different.

Boot, Carletti, Kotz, Krahnen, Pelizzon, Subrahmanyam, 25 March 2020

The COVID-19 pandemic has massive detrimental economic effects and demands immediate policy actions to prevent a financial or debt crisis. This column argues that while the fiscal policy responses in Europe have some merit in the short term, they put financial stability in the longer run at risk. It calls for a coordinated long-term fiscal plan at the pan-European level to complement national measures. 

Monras, 25 March 2020

While the world is waiting for a vaccine that helps defeat COVID-19, many countries have constrained mobility considerably to try to curb the expansion of the virus. However, such ‘social distancing’ comes with large economic costs. Based on recent evidence on commuting flows and local consumption patterns, this column proposes ways to think about social distancing policies that may be effective and, at the same time, limit the negative consequences for the economy. 

González, 25 March 2020

As countries deploy all instruments to combat the COVID-19 pandemic, this column reminds trade ministers around the world that trade can serve as a powerful, low-cost tool to improve access to medical supplies. It offers various recommendations for immediate action, all of them compatible with WTO rules.

Erce, Garcia Pascual, Roldán Monés, 25 March 2020

The amount of financial resources needed to fight the COVID-19 is so large that most euro area member states will need a backstop from Europe. This column discusses how to use the European Stability Mechanism toolbox to finance the fight, using Spain as an example. It shows that an ESM loan with low margins and a smoothed repayment schedule would stabilise debt stocks and gross financing needs, and that ESM financing could help Spain save around €150 billion in interest payments between 2020 and 2030. A combination of bold ESM and ECB support could reinforce Spain’s debt sustainability after the COVID-19 shock, and could do the same for other member states. 

Ichino, Calzolari, Mattozzi, Rustichini, Zanella, Anelli, 25 March 2020

The world economy cannot survive the current social distancing for more than a few weeks. This column proposes a viable strategy to address the joint health and economic crisis caused by COVID-19, which involves gradually sending the young who face the lowest risks back to work on a voluntary basis. This should happen as soon as the congestion of healthcare systems is less critical, but while a large fraction of the population is not yet immune. All of these workers in centrally relevant sectors must be temporarily separated from the old and the immunocompromised. They must also be frequently tested for COVID-19 and for subsequent immunity as well as monitored to immediately trace the contagion they may induce or receive.

Codogno, van den Noord, 25 March 2020

The COVID-19 outbreak that is hitting the euro area economy needs to be met by a powerful policy response beyond the emergency measures already in place. This column uses an empirically calibrated model to show that the creation of a safe asset and fiscal capacity at the centre – on which the debate has been ongoing for a long while – would be a powerful means to mitigate the economic impact of the crisis.

Drechsel, Kalemli-Ozcan, 24 March 2020

Strong policy interventions are required to support the economy during the COVID-19 pandemic. This column provides estimates on the costs and effects of a negative lump-sum tax for US SMEs based on firms’ payrolls. A policy covering the payroll for all firms with fewer than 500 employees for three months could benefit 61 million workers in the US at a cost of 3% of GDP.

economists, 24 March 2020

With a significant fraction of workers sick or in quarantine, stay-at-home policies and the closing of borders, the risk of disruptions in supply chains has risen. In this column, a group of concerned economists advocate the establishment of a ‘monitoring cabinet’ to detect problems along the production and distribution chains of essential goods in real time, and inform populations about the availability of these goods in a credible and reassuring manner.

Dietrich, Kuester, Müller, Schoenle, 24 March 2020

The effects of the COVID-19 pandemic on the global economy are still largely unknown. The short-term economic impact will depend importantly on people’s expectations of the overall effect, and the amount of uncertainty thereof. This column uses a survey of US households to show that the expected economic effect is negative, large, and highly uncertain. An asset-pricing equation is used to quantify the implication of these expectations for the natural rate of interest. The natural rate declines by several percentage points, suggesting a role for monetary accommodation to (partially) offset the shock.

Giavazzi, Tabellini, 24 March 2020

This war-like shock will require very large fiscal support. Its financing cost should be distributed over several generations. This can be achieved by issuing irredeemable or very long maturity Eurobonds. They should be backed by the ECB to keep the financing burden low. This column argues that no institutional or legal constraints prevent this policy response. Prompt action is critical since allowing one crisis to morph into many could disrupt the European project, with far-reaching and unpredictable political implications. 

Angeloni, 24 March 2020

Banks are the key to providing financial oxygen to the economy, but the coronavirus pandemic is raising the risk that banks in the euro area will cease to function. This column argues that the return to normality we all crave requires, among other things, that banks be saved, and that this will not happen unless regulation is adapted and more public support is provided.

Gormsen, Koijen, 23 March 2020

The economic effects of the coronavirus outbreak, and the preventive measures adopted around the world, are still largely unknown. In addition, standard macroeconomic models based on fundamentals may be slow to adapt in this fast-changing environment. This column uses high-frequency data on dividend futures to evaluate the impact on growth expectations. Dividend growth and GDP growth expectations in the US and EU begin to deteriorate after the lockdown in Italy, and these effects are exacerbated by the travel restrictions imposed thereafter. The lower bound on dividend growth is as severe as during the Global Crisis, at least in the short run.

Bown, Erbahar, Zanardi, 23 March 2020

The decades preceding the Trump era saw a significant decline in trade barriers and a concurrent rise in global value chains. Evidence on the direction of causality between the two is still lacking. Using an exogenously timed WTO requirement for countries to re-evaluate previously imposed tariffs, this column argues that increased activity through global value chains had an important role to play in the countries’ choice to reduce trade protection during this period. 

Caldera, Maravalle, Rawdanowicz, Sanchez Chico, 23 March 2020

Global economic growth is expected to remain weak and significant downside risks persist. As room for conventional monetary policy is limited or exhausted, policymakers will need to rely increasingly on fiscal policy to stabilise the economy during the next economic downturn. This column presents new OECD estimates which suggest that automatic stabilisers on average offset 60% of a specific shock to market income across 23 OECD economies. However, there are marked differences across OECD countries leaving scope to make automatic stabilisers more effective.

Huang, Lin, Wang, Xu, 23 March 2020

With the COVID-19 outbreak having officially become a pandemic, it is essential to consider not just how to prevent further public health crises but also economic and financial crises. This column suggests that in both cases, recent lessons from China are instructive. China enacted aggressive public health policies that appear to have been effective, at least in the short term. But the measures taken to stem the public health crisis may still lead to a domestic economic meltdown that could infect international trade.

Dewatripont, Goldman, Muraille, Platteau, 23 March 2020

The first phase of the economic response to the COVID-19 pandemic is already under way with measures that, while costly, are relatively ‘easy’. The second phase – restarting the economy – involves the more challenging task of overcoming people’s fears of contracting the virus from a co-worker. This column describes how a combination of two currently available tests could identify people who are both free from COVID-19 and immune to it, and thus are safe to go back to work. A targeted scaling-up of procedures for both tests will help maintain vital services and accelerate the relaunch of the economy, while minimising the risk of the epidemic recurring after restrictions are lifted.

Weder di Mauro, 23 March 2020

How can euro area countries work together to protect their economies? A diverse group of economists has suggested the creation of an emergency Covid credit line. CEPR President Beatrice Weder di Mauro tells Tim Phillips how it would work.

Aassve, Alfani, Gandolfi, Le Moglie, 22 March 2020

Long-term effects of a pandemic go well beyond the demographic losses. This column uses a representative survey of the US population in the aftermath of the Spanish flu to evaluate the permanent consequences of the pandemic on individual behaviour. It finds that social disruption during the period led to long-term deterioration in social trust, which had important economic consequences. The findings highlight the importance of a strong response to the COVID-19 pandemic. 

Acharya, Steffen, 22 March 2020

Stock prices have declined and credit market conditions have tightened in response to the COVID-19 pandemic. Firms typically respond to such outcomes by exercising their liquidity insurance and drawing down their credit lines. This column uses two ‘stress tests’ to demonstrate that the quantum of credit commitments likely to move onto banks’ balance sheets should be manageable thanks to the healthier capitalisation of banks relative to before the Global Crisis.  However, in a severely adverse scenario, the average Tier 1 capital to risk-weighted assets ratio of banks will likely move closer to the regulatory minimum of 8% and well below for some banks.  Regulators should plan in advance for such a severe stress test by ensuring that banks prevent any further capital depletion through dividend payouts or share buybacks. 

Baldwin, 22 March 2020

“Go big. Act fast. Keep the lights on” is good advice for governments trying to flatten the epidemiological and recession curves simultaneously. This column argues that the combination of containment policies that dampen production and stimulus policies that maintain spending will generate supply-side problems. Cost-push inflation may return, political pressures for price controls and rationing may be irresistible, and governments may find themselves engaged in thinking about production and logistics of the type not undertaken since the 1940s.

Fetzer, Hensel, Hermle, Roth, 21 March 2020

There is a risk that economic anxiety over the coronavirus crisis will fuel a long-term economic downturn. This column uses Google search activity and individual survey data to document a rapid increase in economic anxiety in the US in response to the initial global spreading of the virus. Survey respondents tended to overestimate the mortality and contagiousness of COVID-19, but underestimated the non-linear nature of how infectious diseases spread. This suggests that information and public education may play a central role in containment and in managing the negative economic impact of increased economic anxiety.

Hamilton, Veuger, 21 March 2020

The threat posed by the pandemic cannot be addressed simply by relying on Keynesian demand stimuli. This column explores the notion of using public spending to build a bridge for businesses during this unprecedented period. The EU needs to be open to a variety of new policy measures to meet the challenge head on, perhaps even turning to Eurobonds to deal with lingering fiscal sustainability concerns going forward.

Bénassy-Quéré, Boot, Fatás, Fratzscher, Fuest, Giavazzi, Marimon, Martin, Pisani-Ferry, Reichlin, Schoenmaker, Teles, Weder di Mauro, 21 March 2020

It is in the interest of every EU member state that countries in the Union hit by the coronavirus are able to take the necessary measures to control the pandemic and deal with the economic consequences without being constrained, and to do so very quickly. This column proposes a Covid credit line in the European Stability Mechanism, with allocation across member states proportionate to the severity of the public health and economic challenges encountered. While it would involve some coordination and solidarity among member states, the dedicated credit line would reduce risks to economic and financial stability for all while allowing members to sustain their efforts by making their borrowing costs less dependent on individual fiscal situations.

Becker, Hege, Mella-Barral, 21 March 2020

The coronavirus pandemic is likely to lead to a steep, and potentially protracted, economic downturn. In response, many countries have implemented ambitious packages to support households and businesses. This column argues that in light of already elevated debt burdens, provisions for future debt restructuring should be made as soon as possible. These include carefully designed bailout packages, speedier in-court insolvency proceedings, and a stronger role of the state in dealing with renegotiations. Failure to plan and prepare for these cases could lead to a much slower economic recovery.

Bowles, Carlin, 20 March 2020

In the shadow of the Great Depression, Paul Samuelson placed the “really interesting and vital problems of overall economic policy” – notably persistent unemployment – at the front of his introductory text. What future citizens learned from their economics courses was transformed by the new knowledge – Keynesian economics – applied to the new problems. This column asks whether we are now at a similar juncture. Using topic modelling, it finds that the novel themes in published research in recent decades – concepts that empower economists to address today’s major challenges of climate change, inequality, and the future of work and of property rights in the knowledge-based economy – are strikingly absent from today’s leading textbooks.

Horn, Reinhart, Trebesch, 20 March 2020

The world is coping with a global disaster, as the new Coronavirus takes a toll on many lost lives and a severe impact on economic activity. To provide a long-run perspective, this column documents the international response to a variety of disasters since 1790. Based on a new comprehensive database on loans extended by governments and central banks, official (sovereign-to-sovereign) international lending is much larger than generally known. Official lending spikes in times of global turmoil, such as wars, financial crises or natural disasters. Indeed, in these periods, official capital flows have repeatedly surpassed total private capital flows in the past two centuries. Wars, in particular, were accompanied by large surges in the volume of official cross-border lending.

Barro, Ursua, Weng, 20 March 2020

What is a plausible worst-case scenario for outcomes under COVID-19? This column draws lessons from the 1918-1920 Great Influenza Pandemic. Data for 43 countries imply flu-related deaths back then of 39 million, 2% of the world population, implying 150 million deaths when applied to current population. Controlling for effects from WWI, GDP and consumption in the typical country declined by 6% and 8%, respectively, while real returns on stocks and short-term government bills fell meaningfully. Large potential losses in lives and economic activity justify current policy actions to limit the damage, but there is a difficult tradeoff between mortality and lost output, and this tradeoff warrants discussion that is absent so far.

Bayer, Kuhn, 20 March 2020

There are large differences in case fatality rates from the coronavirus outbreak across countries, from around 6% in Italy to close to zero in some northern European countries (as of 12 March). This column uses World Value Survey data on the share of people aged 30-49 who live with their parents to show that fatality rates are initially higher in countries with more intergenerational interactions. It provides a warning for how important it is for countries where the elderly and the young live close together in particular to try to contain the virus early on.

Stantcheva, 20 March 2020

We think about political polarization as a disagreement about policies. But what if the voters can't even agree on the facts? Stefanie Stantcheva tells Tim Phillips about new research that has profound implications for democracy.

Garicano, 20 March 2020

Faced with a huge increase in the number of COVID-19 cases, by now all EU governments have undertaken strategies of varying degrees to ‘flatten the curve’ – to reduce the rate of growth of the pandemic in order to avoid a collapse of European healthcare systems. This column, taken from the recent Vox eBook, proposes a €500 billion ‘bazooka’ to fight the virus, stabilise the European economy, and protect its jobs while the economy is in the ‘freezer’. It also discusses how to finance this package. 

Quah, 20 March 2020

In a VoxTalks special, Danny Quah tells Tim Phillips how Singapore defended itself against the health and economic impact of Covid-19, and what other countries can learn from its actions.

Find Danny's chapter  in the new VoxEU book Mitigating the Covid Economic Crisis.  Free to download here.

Evenett, 19 March 2020

Given the centrality of China to many international supply chains, there is considerable interest in the impact of COVID-19 on global trade flows. And a troubling trade policy dimension is now coming to light. This column reports on and assesses a finding of the Global Trade Alert that 24 nations have recently imposed export restrictions on medical supplies.

Maćkowiak, Wiederholt, 19 March 2020

Economists may not have been able to do much about the outbreak of the coronavirus, but this column argues that economics can help tackle the problem at its source by reducing the spread of the virus. Using a theory of decision-making by agents who have limited information-processing ability, it offers various recommendations for individuals and policymakers to limit the spread of COVID-19.

Freund, Maliszewska, Mattoo, Ruta, 18 March 2020

Should the China-US trade agreement prompt relief or concern? This column argues that the answer depends on how China implements the agreement. Model simulations suggest that both countries would be better off under this ‘managed trade’ agreement than if the trade war had escalated. However, compared to the policy status quo, China is worse off and so is the rest of the world because of trade diversion. China can reverse those losses if instead of granting the US privileged entry, it opens its market for all trading partners.

Revoltella, Rückert, Weiss, 18 March 2020

European firms lag behind the US in R&D investment and the adoption of digital technologies. Using firm-level data from 2019, this column finds that larger firms have higher rates of digital adoption than do their smaller peers, and that digital firms have better management practices and show more dynamism. European policymakers looking to close the innovation gap should address structural barriers to investment in digitalisation, remove disincentives to grow, and reduce market fragmentation, particularly in the service sector.

Akin, Marín, Peydró, 18 March 2020

There is a broad discussion surrounding the excessive risk-taking by banks and whether this constitutes a reliable early warning signal for future banking problems. This column presents evidence that many top executives of US banks sold their own shares in the buildup to the Global Crisis. This trends appears to be stronger for banks with higher real estate exposure, and weaker for independent directors or middle officers. Although the top bankers in riskier banks sold more shares, thus furthering their own interests, they did not reduce bank risk exposure.

Biancotti, Borin, Cingano, Tommasino, Veronese, 18 March 2020

Governments around the world are tackling the COVID-19 pandemic from different angles. This column, by members of the Bank of Italy’s COVID-19 monitoring group, argues that in the absence of coordinated containment measures, the most likely outcome is the worst of both worlds: preventable loss of lives and of GDP. Predictability and consistency in policy responses across space and time is key, both in the public health and economic domains. Effective cooperation in avoiding a 'common bad' might be able to endow the world with the crucial common good of a more complete and effective governance. The European Union should be the first to set an example.

Galí, 17 March 2020

The measures many countries are taking to contain the spread of coronavirus, while necessary, are bound to have a direct impact on the economy. This column argues that rather than raising taxes and/or increasing government debt to finance the necessary fiscal programmes, the time has come for ‘helicopter money’ – direct, unrepayable funding by the central bank of the additional fiscal transfers deemed necessary.

Konrad, Rees, 17 March 2020

Small EU states regularly sell 'golden passports' to high net worth individuals, and these citizens thus earn the right to live and work anywhere in the EU. By imagining member states as private clubs and the EU as a ‘meta-club’, this column presents a model of the effects of this activity. While selling golden passports may be seen as an informal transfer to poorer states, the number of citizenships granted will always be larger than is optimal for the EU as a whole.

Kose, Nagle, Ohnsorge, Sugawara, 16 March 2020

The global economy has experienced four waves of rapid debt accumulation in emerging and developing economies over the past 50 years. This column examines these waves of debt and puts the fourth (current) wave in historical context. The current wave of debt, which started in 2010, stands out for its exceptional size, speed, and breadth. While the previous three waves all ended with widespread financial crises, policymakers have a range of options to reduce the likelihood of the current debt wave ending in crisis.

Bau, Matray, 16 March 2020

The misallocation of inputs, and in particular capital, may explain the large disparities in productivity across countries. This column exploits a policy in India in the early 2000s to quantify the effects of foreign capital liberalisation on misallocation and aggregate manufacturing productivity. As a result of the liberalisation policies, capital-constrained firms expanded their assets by 60%, spent more on labour (+24%), and increased their revenue by 18% relative to non-constrained firms. The effects of liberalisation were largest in areas with less developed local banking sectors.

Hodula, 16 March 2020

The shadow banking system has become an important source of funding worldwide for the real economy over the last two decades. Europe is no exception, though research on shadow banking there has been relative scarce. This column shows that European shadow banking is highly procyclical, intertwined with insurance corporations and pension funds, and a terminal station for regulatory arbitrage. It also discusses the existence of two main motives that explain the growth of shadow banking, both prior and post-Global Crisis: a funding-cost motive and a search-for-yield motive. 

economists, 16 March 2020

The COVID-19 pandemic is an extreme event that threatens the health and economic wellbeing of populations across the globe. This manifesto from a group of Portuguese economists calls for urgent action from the EU to prevent the suffering of its people and to save itself and the democratic values it stands for. A large-scale emergency programme requires massive emergency funding, and in the face of extraordinary circumstances, the ECB must be allowed to finance such a programme.

Hermansen, 15 March 2020

More than a fifth of American workers are required to hold an occupational licence to do their job, usually with the aim of protecting public health and safety. However, secular declines in job mobility, business dynamics, and productivity growth have raised concerns over the costs of licensing and its potential influence on these trends. Using novel administrative data with nearly complete employment coverage, this column presents suggestive evidence of sizeable effects of licensing on job mobility, especially on job-to-job flows across states. 

Baldwin, 15 March 2020

Estimates by medical experts suggest that the US does not have the hospital capacity to handle a spike in COVID-19 cases as large as the one seen in Italy. Avoiding triage situations at US hospitals is particularly important given the health vulnerability of so many Americans, the incipient rage stemming from decades of economic malaise and rising inequality, and the widespread ownership of guns. The solution is to err on the side of caution by implementing immediate, large-scale social distancing.

Tomiura, Ito, Kang, 14 March 2020

Cross-border data flows are becoming increasingly important in the modern economy. In response, many countries have introduced regulations to control data transfers. This column discusses the firm-level response to such regulations using a recent survey of Japanese firms. Firms react by changing the location of data storage and processing, as well as by tightening data protection. However, these responses vary significantly depending on where the regulations originate. 

Müller, 14 March 2020

The coronavirus crisis is hitting economies hard. This column argues that policymakers risk doing too little too late – and creating plenty of confusion on the way. It also suggests some lessons that can be learnt from the response to the last crisis.

Vaitilingam, 14 March 2020

As tumbling stock markets indicated growing fears about the potential economic impact of the coronavirus, the IGM Forum at Chicago Booth invited its panels of leading economists in the US and Europe to express their views on the likelihood of a major recession. This column reveals a broad consensus across the experts that there will be a sharp downturn in the economy, but less agreement on how prolonged the dip is likely to be. Asked about the relative importance of supply and demand shocks damaging the economy, reactions were more mixed. But over two-thirds of the European economists are highly doubtful of the readiness of the economic policy institutions of the euro area to respond effectively to the potential damage from COVID-19.

Bollen, 13 March 2020

While the energy transition to decarbonise the EU’s economy fully by 2050 will be felt economically in all member states, the costs of decarbonising can be substantially lowered through maximising the production of hydrogen, which in turn can be used to generate electricity. This column uses a global climate-energy economic model to compare three energy production scenarios. It finds that wind energy plus gasification of biomass, natural gas, or coal with carbon capture storage can reduce the cost of achieving Europe’s 95% emissions-reduction goal by 40%. 

Born, Müller, Pfeifer, Wellmann, 13 March 2020

Country spreads have traditionally been discussed in the context of emerging market economies, which tend to have high and volatile spreads. This column analyses spreads for both emerging and advanced economies before and after the Global Crisis. It argues that an ‘unpleasant convergence’ took place after 2008 and that the behaviour of country spreads in advanced economies is now similar to that in emerging economies. This is due to a both a decline in the volatility of the spreads for most emerging economies and an increase in volatility for advanced economies.

Baldwin, 13 March 2020

The COVID-19 economic crisis is different. It hit the economic giants all at once – the G7 nations and China. And the economic strikes are widely spread, hitting many sectors all at once. It is not a credit crisis, or a banking crisis, or a sudden-stop crisis, or an exchange crisis. Today’s crisis is a bit of all these. Given the transient nature of the underlying medical shock, this column argues that governments should focus on ‘keeping the lights on’ using costly but quick measures to ensure the circular flow of money continues to circulate. The goal should be to reduce the persistence of the crisis and avoid the unnecessary accumulation of ‘economic scar tissue’.

Ramelli, Wagner, 12 March 2020

The novel coronavirus represents a fearsome risk which is stirring feverish behaviour by investors worldwide. This column shows that initially, economic expectations about international trade underlay movements in the stock prices of individual firms; later, concerns about corporate debt began to play a role. 

Blau, Kahn, Brummund, Cook, Larson-Koester, 12 March 2020

Previous studies provided evidence that even in developed countries, parents behaved differently with sons than with daughters. In light of more recent data, this column presents new evidence that the preference for sons appears to have declined in the US. Having a female first child continues to increase the likelihood of a family’s living without a father, but is now associated with lower fertility over time. 

Baldwin, 12 March 2020

The spread of COVID-19 is not going to follow an exponential curve – and grave errors will follow if analysts believe it will. The number of new cases rises rapidly, peaks, and then declines. It’s called the epidemiological curve. It’s not a theory or hypothesis; it plays out that way every flu season. It is how it has played out in China and Korea for COVID-19. Flattening the peak to avoid overloading the healthcare system is the main medical goal of the seemingly extreme containment policies we have seen to date.

Battistini, Callegari, 11 March 2020

With monetary policy constrained by the effective lower bound, the debt sustainability implications of a fiscal expansion are a pressing concern. This column shows that in a general equilibrium model of fiscal limits, the adverse impact of a fiscal expansion on sustainability is muted at the effective lower bound compared with normal times. Getting the timing of public spending increases right, however, is essential for containing sustainability risks.

Ilzetzki, 11 March 2020

The UK has seen slow rates of productivity growth over the past decade, with output per hour and real wages no higher today than they were prior to the global financial crisis. This column reveals how nearly half of leading economists surveyed by the Centre for Macroeconomics point to low demand due to the financial crisis, austerity policies and Brexit as a major cause for this productivity slowdown. Despite this diagnosis, only a small minority of the panel believes that the solution lies in demand-side policy. Instead, a majority support promoting productivity growth through investments in education and worker training. Other policies, such as infrastructure investments, and tax and regulatory policies are also proposed. 

Bénassy-Quéré, Marimon, Pisani-Ferry, Reichlin, Schoenmaker, Weder di Mauro, 11 March 2020

The unfolding coronavirus epidemic represents a severe economic stress test for Europe as well as a test of European unity. This column discusses how the crisis might unfold and the appropriate policy response. It advocates a comprehensive emergency package through which the EU would take responsibility for a meaningful share of the overall emergency effort.

Fornaro, Wolf, 10 March 2020

The consensus is that the coronavirus outbreak will cause a negative supply shock to the world economy, by forcing factories to shut down and disrupting global supply chains. This column develops a simple model to show that the spread of the virus might cause a demand-driven slump, give rise to a supply-demand doom loop, and open the door to stagnation traps induced by pessimistic animal spirits.

Clemens, Rogers, 10 March 2020

Why has medical innovation brought cost-increasing enhancements to quality, rather than cost-reducing advances in productivity? The column uses a new dataset drawn from patents for prosthetic devices to show that the design of incentives for innovators can have substantial effects on these margins. Fixed-price procurement arrangements induce greater effort to reduce production costs than cost-plus procurement arrangements. Procurement models may therefore inadvertently lead to 'missing innovations'.

Baldwin, Weder di Mauro, 10 March 2020

How big are Covid-19's economic consequences? That's the theme of a new VoxEU book with contributions from many of the world's most experienced policymakers with expertise in this area. Beatrice Weder di Mauro and Richard Baldwin, the book's editors, give Tim Phillips the (mostly) bad news.

Arezki, Fan, 10 March 2020

A combination of supply and demand shocks has sent oil prices plunging and financial markets tumbling. This column argues that if the decline in oil prices persists, it will erode the fragile macroeconomic and social stability of countries, especially in the Middle East and North Africa, that have been hit by the novel coronavirus. 

Besley, Roland, Van Reenen, 09 March 2020

Since the Global Crisis, there has been a renewed awareness of how frictions in credit markets can damage economic efficiency due to a higher cost of capital and/or capital being misallocated away from its most productive uses. This column presents a new methodological approach for calculating the cost of credit frictions which can be implemented with relatively simple data in multiple contexts. It finds that credit market frictions explain half of the fall in UK productivity in the Great Recession and depress output by 28% on average.

Janke, Johnston, Propper, Shields, 08 March 2020

A robust finding in the social sciences is the strong positive correlation between education and health status at all age, but evidence on causality in this relationship has been mixed. This column exploits two education reforms in the UK to study the causal link between education and a large set of prevalent chronic health conditions. While the results indicate, as expected, a clear and statistically significant negative association between years of education and chronic ill health, the strength of association weakens considerably – with the exception of diabetes – once causal identification techniques are applied.

Hoesch, Rossi, Sekhposyan, 07 March 2020

The information channel of monetary policy theory – whereby economic agents revise their beliefs after an unexpected monetary policy announcement not only because they learn about the current and future path of monetary policy, but also because they learn new information about the economic outlook – can potentially explain the puzzle of output increasing after a contractionary monetary policy shock. This column argues, however, that the information channel has disappeared in the US, perhaps due to the improved communication strategies implemented by the Federal Reserve.

De Jonghe, Dewachter, Mulier, Ongena, Schepens, 06 March 2020

Banks in Belgium made strategic lending decisions after the freeze of the interbank funding market in September 2008. This column uses bank-firm combinations to show that banks reallocated credit to sectors where they can more easily extract rents or in which they have an information advantage, or to low-risk firms.

Danielsson, Macrae, Uthemann, 06 March 2020

Artificial intelligence, such as the Bank of England Bot, is set to take over an increasing number of central bank functions. This column argues that the increased use of AI in central banking will bring significant cost and efficiency benefits, but also raise important concerns that are so far unresolved.

Ginther, Hengel, Lundberg, Stearns, 06 March 2020

Women are under-represented in economics, and the situation is not improving. Economists Shelly Lundberg, Donna Ginther, Jenna Stearns and Erin Hengel talk to Tim Phillips about VoxEU's new book on the subject that examines the barriers that women face in the profession, and also suggests ways to support the next generation of female economists.
Download the book here

Baldwin, Weder di Mauro, 06 March 2020

The novel coronavirus is both something old and something new. As usual, the pandemic is both an aggregate demand and an aggregate supply shock, but the fact that it has hit China first and hardest, and the supply chain implications of this, make it something new. This column introduces a new Vox eBook containing 14 essays written by leading economists on a wide array of topics related to COVID-19 economics.

Keller, Utar, 05 March 2020

The 20th century saw a steady increase in the number of women postponing motherhood to enhance their labour market opportunities. Sometime in the early 2000s, that trend ended. This column compares the experience of women in the US and Denmark and finds that women of childbearing age who experienced diminished labour market opportunities because of import competition from China turned towards family life, while men focused on finding a new career path in the labour market. Import competition from China raised the likelihood of marriage for women but not for men.

Lundberg, 05 March 2020

Women are substantially underrepresented in the field of economics. This column introduces a new Vox eBook in which leading experts on the issue of gender in economics examine the role and progress of women in professional economics, review the barriers women face at various stages of the training and promotional pipeline, evaluate programmes designed to support and encourage female economists, and discuss the benefits of greater gender equality across economics research professions. 

Argentesi, Buccirossi, Calvano, Duso, Marrazzo, Nava, 04 March 2020

Dominant companies in the digital market may use merger and acquisitions – especially ‘killer’ or ‘zombie’ acquisitions – and the (under)enforcement of merger control to stifle competition and cement their market dominance. This column analyses acquisition activity by Amazon, Facebook, and Google between 2008 and 2018, and finds that they often targeted very young firms. Because the evolution of young firms is still uncertain, it is difficult for competition authorities to assess the effects of these mergers, especially when the focus is on single acquisitions without considering the overall acquisition strategy.

Dell'Ariccia, Igan, Mauro, Moussawi, Tieman, Zdzienicka, 04 March 2020

During the Global Crisis, governments rescued banks with capital injections, asset purchases, and guarantees. Until now, we have had no clear idea what happened to that taxpayer money. This column uses bank-level data to compile a comprehensive accounting of the costs of, and returns on, these interventions. While initial public support cost $1.6 trillion, the total fiscal impact has been $250 billion – on average less than 1% of GDP.

Cozzi, Darracq Pariès, Karadi, Körner, Kok, Mazelis, Nikolov, Rancoita, Van der Ghote, Weber, 03 March 2020

Following the financial crisis, central banks and regulatory authorities assumed new powers to set macroprudential bank capital requirements. This column describes a number of macro models used by the ECB to measure the real impact of capital requirements and their interactions with monetary policy. It warns that a weaker banking system amplifies the impact of monetary policy and contributes to economic instability. Banks’ capital buffers are best augmented during times of affluence, when looser monetary policy can mitigate the costs of increasing capital requirements.

Benguria, Taylor, 03 March 2020

A perennial and fundamental macroeconomic question is whether financial crises are negative demand or supply shocks. This column discusses how the response of international trade flows and prices to financial crises can shed light on the debate. Evidence based on a new dataset of two centuries of financial crises and trade suggests financial crises are clearly negative shocks to demand.

Breinlich, Leromain, Novy, Sampson, 02 March 2020

When the UK voted to leave the EU on 23 June 2016, financial markets were taken by surprise and the sterling exchange rate depreciated sharply. Since then, UK imports have become more expensive. The original version of this column, published in November 2017, found weaker sterling increased UK consumer prices by 1.7% in the year after the referendum. Updating the analysis using more recent data, we estimate that the Brexit depreciation increased UK consumer prices by 2.9%. This represents an £870 per year increase in the cost of living for the average UK household, meaning people have to work 1.4 weeks longer to afford the same goods and services.

Habib, Stracca, Venditti, 02 March 2020

What makes government bonds a safe asset? This column shows that the low political and institutional risk of issuing countries and the relative size of the debt market foster a safe asset status, with the latter factor – size – reflecting the special role of the US in providing a large, deep and liquid market for government bonds. Inertia – whether the bond behaved as a safe asset in the past – is also important. Notably, the drivers of safe asset status are heterogeneous within advanced and emerging markets, with external sustainability in particular being relevant for the latter group of countries. 

Zhuo, Huffaker, Claffy, Greenstein, 01 March 2020

The internet comprises thousands of independently operated networks, where bilaterally negotiated interconnection agreements determine the flow of data between networks. This column examines the impact of the EU’s General Data Protection Regulation on the interconnection behaviour of network operators. It finds no measurable effects of GDPR on interconnection topology at the network level, with networks in the EEA growing at a rate similar to networks in non-EEA OECDcountries and only economically small effects on the entry and the number of networks. 

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