April 2020

Löyttyniemi, 30 April 2020

The Covid-19 crisis is raising the financial burden for governments in Europe and worldwide. The current focus is on short-term immediate actions and targeted financial benefits to minimise the negative economic impacts. Soon the discussion will focus on how to manage the sovereign debt burden. In Europe, the public debate has centred around Coronabonds, while inflationary solutions have also been receiving academic attention. This column argues that a more practical solution is to introduce simple, temporary ‘coronataxes’ over the next five to ten years. These taxes could be implemented nationally and supported by European-level coordination.

Caballero, Simsek, 30 April 2020

The Covid-19 shock has caused large turmoil on financial markets. This column argues that non-financial supply shocks such as the current one can endogenously lead to financial shocks and severe contractions in asset valuations and aggregate demand, which substantially amplify a recession. Conventional monetary policy can mitigate the downward pressure as long as the interest rate is unconstrained. If it is, large-scale asset purchases by government facilities are needed to prevent a downward spiral.

Woodruff, 30 April 2020

Low-income countries lack the resources to replicate European-style income support programmes to alleviate the economic impact of COVID-19 lockdowns. In Bangladesh, a key challenge will be to support export-oriented production in the ready-made garment sector, which employs 4 million workers. Whether factories retain or lay off workers in response to government policies – and whether the health crisis escalates into a humanitarian crisis or not – depends crucially on decisions of foreign apparel buyers to honour or drop commitments to previously agreed orders.

Motta, Peitz, 30 April 2020

The European Commission has been asked to develop a proposal for a new recovery fund of more than €1 trillion. Given the substantial support needed by most sectors in the present circumstances, it is crucial to identify the ones which are most important to proper functioning of the EU economies. Based on the principle of subsidiarity, this column formulates two general criteria to identify these sectors: those for which (i) the volume of cross-border trade within the EU is large, or (ii) externalities across member states are important. Support schemes should be oriented towards the future and not try to preserve the status quo ante.

Tacke, Madgavkar, Kotz, 30 April 2020

The first two decades of the 21st century saw job opportunities expand and prices for discretionary consumer goods drop. But these gains came at the cost of social contracts in many countries, where working arrangements became more fragile, wages stagnated, and the labour share of income fell. This column argues that the severe economic consequences of the COVID-19 pandemic have revealed vulnerabilities in the social contract. When the immediate crisis is over, risk may need rebalancing towards an increasing role for institutions and mutualisation.

Ferris, Hanousek, Tresl, 30 April 2020

Corporation corruption is an issue that remains at the forefront of regulatory policy. This column examines the persistence of corruption among a sample of privately held firms from 12 Central and Eastern European countries. Creating a proxy for corporate corruption based on a firm’s internal inefficiency, it is suggested that corruption can enhance a firm’s overall profitability. A channel analysis reveals that inflating staff costs is the most common approach by which firms divert funds to finance corruption. Corruption may persist simply because of its ability to improve a firm’s return on assets.

Gonzalez-Uribe, Wang, Djankov, 30 April 2020

Loan guarantees to small businesses are emerging as a main policy response during the COVID-19 crisis. Using evidence from the UK’s Enterprise Finance Guarantee scheme from 2009, this column argues that such policies enable some financially constrained firms to retain workers that otherwise would have been laid off, and whose retention was fundamental in rebuilding the businesses post-crisis. However, less-educated workers in jobs with low training costs are more likely to be laid off, implying that the guarantee policy is regressive. 

Baek, McCrory, Messer, Mui, 30 April 2020

Stay-at-home orders have been imposed in many countries to flatten the COVID-19 pandemic curve, but it’s not clear how much economic disruption is caused directly by the orders and how much by the coronavirus. This column disentangles the two by comparing the implementation of stay-at-home policies across the US and high-frequency unemployment insurance claims. The direct effect of stay-at-home orders accounted for a significant but minority share of the overall rise in unemployment claims; unemployment would have risen even without such orders. So long as the underlying public health crisis persists, undoing stay-at-home orders will only bring limited economic relief.

Gereben, Wolski, 29 April 2020

With the coronavirus crisis unfolding, many countries have announced new lending and guarantee programmes dedicated to supporting businesses’ access to finance. This column examines the impact of such programmes, focusing on European Investment Bank lending schemes. The findings suggest that publicly funded lending support programmes can make a difference in maintaining employment and investment activity at the firm level.

Corsetti, Erce, 29 April 2020

The Eurogroup recently agreed to provide support during the Covid crisis through a dedicated European Stability Mechanism credit line. A discussion is playing out in European capitals, most intensely in Rome and Madrid, regarding the usefulness of tapping these credit lines. While the final details are still pending, this column evaluates the conditions that seem to be currently on the table. As these programmes provide very little interest savings, designing them in such a way that would not trigger disruptions in the bond markets of borrowing countries is key. To this end, the ESM should consider waiving its seniority and engaging with countries using longer maturity structures.

Harding, Stefanski, Toews, 29 April 2020

Due to the collapse in the price of oil, oil-exporting economies are experiencing a huge loss of foreign revenues. This column argues that this may create a window of opportunity to transition away from resource dependence by expanding the tradable goods sector, hence diversifying the economies. Assuming symmetric economic responses for booms and busts and relying on estimates for unexpected giant resource discoveries which predict an appreciation of the real exchange rate and a contraction of the manufacturing sector, the current drop in the oil price may lead to a boom in manufacturing.

Harmon, Ivashina, 29 April 2020

Over the past decade, low interest rates attracted borrowers to leveraged credit markets, which have since reached an unprecedented size and risk. The collision of a highly leveraged corporate sector with the severe economic shock from COVID-19 has created unique financial problems. This column analyses the main vulnerabilities in the loan market and evaluates the current US government response. Although the current stimulus programmes are significant, they can be improved to better target at-risk businesses, mitigate moral hazard, and optimise the level of direct government funding.

Koren, Peto, 29 April 2020

Social distancing interventions can be effective against epidemics, but they are potentially detrimental to the economy. Businesses that rely on face-to-face communication or close physical proximity when producing a product or providing a service are particularly vulnerable. This column provides theory-based measures of the reliance of US businesses on human interaction, detailed by industry and geographic location. Retail, hotels and restaurants, arts and entertainment and schools are the most affected sectors. The results can help target fiscal assistance to businesses that are most disrupted by social distancing.

Baldwin, Evenett, 29 April 2020

Incomes and trade are collapsing worldwide. Many nations have imposed export restrictions on medical supplies and food, raising the spectre of across-the-broad protectionism. This column introduces a new eBook that asks: Should governments turn inward? The answer is “No”. Turning inwards won’t help tackle the health crisis, it will harm many (especially in developing nations), and it will hinder the collaborative spirit that the human race will need to defeat this disease. Trade isn’t part of the problem – it’s an essential part of the solution.

Benmelech, Frydman, 29 April 2020

The immediate economic fallout for the US economy from the coronavirus pandemic is predicted to be disastrous. In comparison, while the Spanish flu also had some economic consequences, they were mostly modest and temporary. This column evaluates the developments in the US economy during the 1918 influenza, in search of a possible explanation for the limited adverse effects of the flu despite similar social distancing requirements, albeit at a lower scale. It concludes that a large expansion in government demand can go a long way in softening the economic impact of the crisis we face today. 

Schmitt-Grohe, 29 April 2020

Last month the media accused New York's wealthy residents of jumping the queue for Covid-19 testing. Stephanie Schmitt-Grohé, a New York resident herself, ran the numbers. She tells Tim Phillips what she discovered.

Blanga-Gubbay, Conconi, Parenti, 28 April 2020

The number of regional trade agreements has grown significantly in recent years. There is an ongoing debate about the winners and losers from these agreements, as well as the political economy that shapes them. This column uses extensive data on lobbying expenditures in the US to analyse how firms exert political influence for free trade agreements. It shows that virtually all lobbying firms are in favour of such agreements. A theoretical model is used to explain this finding and further characterise the intensive margin of lobbying expenditures.

Seric, Winkler, 28 April 2020

The COVID-19 pandemic has exposed the vulnerabilities of global value chains. In response to supply chain risks, global lead firms have relied on Industry 4.0 technologies as well as reshoring parts of production. This column explores the potential impacts of these developments on the breadth and depth of global value chains. Automation and reshoring allow for more flexible adjustment to changing demand and the mitigation of supply-side risks. Ultimately, the implications of automation on development will depend on both the types of foreign inputs sourced as well as the relationship between robots and labour.

Cahuc, Hervelin, 28 April 2020

It is widely believed that apprenticeships lead to better employment outcomes. This column presents the results of a field experiment conducted in France to show that apprentices do not perform significantly better than vocational students when they look for jobs outside the firm in which they trained. This means that the positive effects of apprenticeship on youth employment come from the retention of apprentices in their training firms. If the effectiveness of apprenticeship is the creation of better matches between labor market entrants and jobs, policies should focus more on the collaboration between schools and public employment services.

Kodres, 28 April 2020

Amid the uncertainty of the COVID-19 pandemic, the movements in equity markets’ around the world have mirrored the spread of the virus and its virulence. Attempts to limit market crashes, volatility, and financial contagion have taken a number of different forms. This column explores the two main policy responses available to financial market regulators – bans on short sales versus circuit breakers – and reviews them in the context of some ‘best practices’ for market regulation.

Boone, Santos Pereira, 27 April 2020

The crisis faced by Europe is extraordinary and requires extraordinary responses. It is also a unique opportunity for Europe, and in particular the EMU, to consolidate its economic and financial architecture and to promote Europe as the engine of “shared prosperity”. This column argues that a significantly reinforced and revamped ESM or a new financial instrument based on joint issuance are possible vehicles to translate words into action. 

Scott, Old, 27 April 2020

COVID-19 is the first pandemic to since the world’s population consisted of more people aged over 65 than under five. Given that COVID-19 fatality rates rise sharply with age, that substantially affects the number of people at risk and the gains from social distancing. This column reveals that adjusting for change in the age structure and longevity of the US, the value of social distancing today is more than three times its corresponding 1920 value. Ageing societies and longer lives support considerably longer economic shutdowns compared to past pandemics.  

Carvalho, Ramón García, Hansen, Ortiz, Rodrigo, Rodríguez Mora, Ruiz, 27 April 2020

Individual transaction-level data can be used to map the changes in consumer behaviour in response to the COVID-19 lockdown measures. This column exploits data from BBVA to analyse the nature of the impact in Spain. The findings indicate that there has been a large decline in overall expenditure and that anticipatory spending (stockpiling) has taken place, whilst non-essentials have more or less collapsed. The authors find no evidence that differential exposure to the pandemic has affected regional expenditure dynamics, but within cities, areas with more prevalence of the pandemic have suffered a bigger economic collapse overall.

Barbieri, Basso, Scicchitano, 27 April 2020

Many countries are now designing exit strategies from the sectoral lockdowns put in place to contain the outbreak of Covid-19. This column provides new evidence from Italy on the degree of workplace risk of exposure to the virus. Unsurprisingly, the health sector is the most exposed to diseases and infections, while the services sector is the most risky in terms of physical proximity. These and other findings can help in deciding which activities to reopen first and where to reinforce security measures.

Auer, 27 April 2020

The rise of stablecoins and asset-backed tokens could drive the development of financial markets via new forms of transparency and data credibility. This column uses the revised proposal for the Libra global stablecoin as an example to illustrate possibilities for supervisors to harness information in distributed ledger based-finance via ‘embedded supervision’. The aim is to increase the quality of data available to supervisors and to reduce administrative costs for firms. 

Alon, Yashiv, 27 April 2020

Countries are facing stark choices between ending the lockdown to revive people’s lives and risking the ravages of the COVID-19 pandemic. This column proposes an exit strategy from lockdown based on a vulnerability in the coronavirus transmission mechanism, i.e. the latent period in which most infected people do not infect others. An optimal work/lockdown cycle based on this weak spot could minimise infection risks while greatly improving the painful trade-offs faced by policymakers.

Gulati, Panizza, 27 April 2020

In a new paper called Born out of necessity, a group of economists and  lawyers propose a way for developing and emerging countries to temporarily redirect debt repayments to fund Covid-19 relief. Ugo Panizza and Mitu Gulati tell Tim Phillips how it would work.

Faia, Mayer, Pezone, 26 April 2020

Directors of corporations often sit on several boards at once. This column asks whether this connectivity is beneficial for firm value (due to a wider network of knowledge sharing), or if it is simply crony-capitalism built on a deep exclusivity at the board level. Exploiting data from Italy, the authors suggest that network centrality may not always translate into a gain for consumers, and that policymakers must be cautious in accommodating the appropriate reactions for cases that may have different implications for consumer welfare.

Joseph, Kneer, van Horen, Saleheen, 26 April 2020

Many firms are facing an unprecedented turnover shock as the corona pandemic unfolds. According to this column, insights from the global financial crisis suggest that firms with high levels of cash going into a crisis are not only better placed to weather the downturn but can improve their competitive positions in the long run. During the financial crisis, cash-rich firms were able to continue to invest while industry rivals without cash had to divest. This led to a shift in competition dynamics, allowing cash-rich firms to outperform their rivals when the economy recovered.

An, Loungani, 26 April 2020

Forecasters expect a recession this year in major economies and a rebound in economic activity in 2021. This column asks how credible such forecasts of recovery are. The past record is not inspiring: forecasters have had little ability to tell in advance whether a recession will end in a rebound or continue on for another year. Policy choices, particularly on fiscal stimulus, are better guided by worse-case scenarios than by the baseline forecasts of recovery. 

Shiva, 26 April 2020

Hospitals around the world are struggling to cope with large waves of COVID patients requiring attention at the same time as providing their regular services to non-COVID patients. This column describers how a failure to invest in public health and access to health care has meant that much of the world is ill-equipped to detect viral threats, protect frontline health care workers, and treat those who fall ill. More capital investment is needed to give health systems a head start for when the next pandemic strikes. 

Heathcote, Glover, Krueger, Ríos-Rull, 26 April 2020

Large portions of many countries’ economies have been shuttered to slow the spread of COVID-19. Why, three months into the pandemic, does the optimal policy response remain so controversial? This column examines how the welfare effects of shutdown policies vary across different types of households. The model predicts that some groups – young workers in sectors deemed non-essential – would benefit from ending the current shutdown, while others – the old – will surely lose. Current disagreements over when to end shutdowns are thus easy to understand.

Fernández-Villaverde, Sanches, Schilling, Uhlig, 25 April 2020

The possibility and logistics of developing a central bank digital currency for the general public has attracted significant attention. Such an initiative would require central banks to be involved in financial intermediation and maturity transformation. This column explores the implications of such a venture by central banks using a classic banking model. With sufficient competition, a central bank digital currency can be beneficial and achieve the optimal allocation of funds. However, it also risks giving central banks excessive monopoly power, which could result in inferior outcomes.

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

The involvement of the EU in fighting the detrimental consequences of the Covid crisis has to be increased. This column expands on an earlier proposal for a European Pandemic Equity Fund – a programme of government assistance for firms hurt by the crisis in the EU – and discusses the principles and conditions relevant for the operationalisation of such a fund.

Shingal, 25 April 2020

While the lockdowns imposed in countries across the world in the wake of COVID-19 will be lifted eventually, social distancing (both voluntary and selective) is likely to stay for longer. This has already had, and will continue to have, a significantly adverse impact on services transactions that require proximity between buyers and sellers. Moving forward, the world could see more regulatory restrictions on services trade on health grounds. This column argues that consequently, trade in services is likely to take longer to recover, with knock-on effects on other sectors of economic activity.

Oliu-Barton, Pradelski, Attia, 25 April 2020

A wide range of social distancing and confinement measures have been implemented globally to reduce the spread of Covid-19. Returning to normality is the next challenge. This column proposes a lockdown exit strategy based on two key elements: identifying ‘green zones'; and then progressively joining them together once it is safe to do so. The zoning approach provides a safe, tractable and efficient way of rebuilding our social and economic interactions. While exponential growth works against us during the spread of the virus, it can also work for us to create a safe future.

Sedláček, Sterk, 25 April 2020

Startups are being hit hard by the COVID-19 pandemic and the lockdown. Introducing a ‘startup calculator’ that allows anyone to compute the aggregate employment losses under various economic scenarios, this column explores the effects of a decline in startup activity on aggregate employment. Job losses may be large and may last well beyond the pandemic itself.

Eichengreen, Viswanath-Natraj, 25 April 2020

Earlier this month the Libra Association issued a new White Paper updating its paper of June 2019.  This column argues that while the authors of the paper now understand that to succeed, their project must address economic and political concerns, they have done nothing to address worries about currency substitution.  A new proposed capital buffer is underspecified.  A key market in Libra futures or forwards is missing, as is a Libra lender of last resort.

Bayer, Born, Luetticke, Müller, 24 April 2020

Among the various measures announced in response to the economic fallout caused by the COVID-19 pandemic, the $2 trillion stimulus package legislated in the US at the end of March 2020 stands out in terms of size. This column quantifies the multiplier of the stimulus’s transfer component. It finds that transfers which top up unemployment benefits are particularly effective because they reduce the income risk due to the lockdown ex ante. In this case, the multiplier may be as high as 2.

Didier, Huneeus, Larrain, Schmukler, 24 April 2020

The COVID-19 pandemic has nearly halted economic activity worldwide. Firm cash flows have collapsed, triggering inefficient bankruptcies as firms' valuable relationships are broken. This column proposes hibernation could allow firms to survive the pandemic, while preserving their vital relationships. All stakeholders could share the burden of economic inactivity, helping more firms to survive. However, financial systems are not well equipped to handle this type of exogenous and synchronised systemic shock so governments should work with the financial sector to keep firms afloat.

Castle, Doornik, Hendry, 24 April 2020

While models based on well-established theoretical understanding and available evidence are crucial to viable policymaking in observational-data disciplines, shifts in distributions can lead to systematic mis-forecasting. This column argues that there is an important role for short-term forecasts using adaptive data-based models that are `robust’ after distributional shifts, and discusses an approach to doing so for the Covid-19 pandemic.

Sarin, Summers, 24 April 2020

The US government’s spending needs have been heightened by the COVID-19 crisis. This column identify ways for the US to raise more revenue in a progressive way and estimates that the Internal Revenue Service could generate over $100 billion annually, and perhaps more than $200 billion, by substantially increasing audit rates (with a focus on high-income individuals), improving third-party information reporting, and investing in better technology.

Ronconi, Kanbur, López-Cariboni, 24 April 2020

A standard argument in labour economics is that labour regulations benefit the ‘insiders’ who are covered by them, but hurt the ‘outsiders’ who are not. This column provides evidence on outsiders’ preferences for labour regulations in developing countries. Contrary to the predictions of the insider-outsider theory, unemployed and informal workers are found to be in favour of increasing labour regulations across all countries studied.

Beck, Wagner, 24 April 2020

While COVID-19 is a global pandemic, the policy responses so far have been almost exclusively national. This column uses a theoretical model to analyse national containment policies in an integrated world. The findings suggest that the first-best solution is global coordination on public health responses, including domestic containment policies. In the absence of ability to coordinate on the global level, regional coordination is called for.

Bekkers, Keck, Koopman, Nee, 24 April 2020

Among its many regrettable effects, Covid-19 will also have a strong impact on international trade. Forecasting potential trade effects is important for policymaking. This column develops a range of scenarios in a dynamic CGE model to simulate possible trajectories for GDP. It then generates short-term forecasts of trade for various regions and the world using time-series analysis. The outlook for 2020 is bleak with trade possibly declining by between 13% and 32%. Some recovery is expected in 2021.

Blanchard, 24 April 2020

Will falling commodity prices, stumbling oil prices, and a depressed labour market bring low inflation and perhaps even deflation, or will very large increases in fiscal deficits and central bank balance sheets bring inflation? This column argues that it is hard to see strong demand leading to inflation. Precautionary saving is likely to play a lasting role, leading to low consumption, and uncertainty is likely to lead to low investment. The challenge for monetary and fiscal policy is thus likely to be to sustain demand and avoid deflation rather than the reverse.

Ito, Ikeuchi, Criscuolo, Timmis, Bergeaud, 23 April 2020

Interconnectedness and relative position in global production networks is an important factor for modern economies. In recent years, Japanese firms have lost their relative influence within the regional value chain. This column analyses the relationship between measures of network centrality and firm innovation output. It finds that having access to a greater breadth of customers is positively related to innovative activities, measured by patent applications. The results suggest an important role of knowledge spillovers from foreign markets.

Bubeck, Maddaloni, Peydró, 23 April 2020

The way that banks in the euro area react to negative central bank interest rates may be closely linked to their individual funding structure. This column suggests that they do not generally pass negative rates on to their depositors, and that they search for yield by investing in riskier securities. New evidence suggests that their investments are directed more towards securities issued by the private sector and securities denominated in dollars.

Accominotti, Lucena-Piquero, Ugolini, 23 April 2020

Informational problems on the money market can lead to credit booms and financial panics. This column shows that, during the first globalisation of 1880-1914, uncollateralised international corporate debts were transformed into highly liquid and safe money market instruments through a refined process of information production involving various intermediaries. This suggests that the design of money market instruments is an essential determinant of the liquidity and resilience of money markets.

Bertocchi, 23 April 2020

As countries gradually loosen lockdown restrictions, there will be increased urgency to determine which segments of the population are least susceptible to COVID-19 and should return to work first. This column re-examines the data on women in Italy and finds that working-age women are more susceptible to the disease than working-age men, likely due to women’s over-representation in jobs – namely, health and education – that expose them to a higher risk of contagion. Policies that count on women replacing men as lockdowns lift could aggravate the problem rather than solve it.

Davis, Mengus, Michalski, 23 April 2020

In recent decades, labour market polarisation led to a decline in middle-paid jobs partially offset by an increase in both high and low-paid jobs. At the same time, a great divergence of cities occurred, with initially skilled and typically larger cities becoming even more skilled relative to initially less skilled and typically smaller cities. This column prevents evidence on a tight link between these two phenomena in France. The heterogeneity of responses to labour market polarisation shocks across cities of different sizes is found to account for their consequently diverging trajectories.

Galeotti, Surico, Steiner, 23 April 2020

While many aspects of testing for Covid-19 fall under the domain of epidemiologists, biochemists, virologists and other natural scientists, there are important concepts, such as the allocation of testing, for which an economic framework can help. This column discusses the informational value of testing and makes the distinction between individual and collective value, both of which depend on the characteristics of the virus, the phase of the epidemic, the instruments available to control the spread, and the reliability of the test. It concludes with a proposal for a sequential testing strategy.

Adda, Azmat, Ichino, Monacelli, Schularick, 23 April 2020

The COVID-19 pandemic is one of the defining moments of our times from both a social and economic perspective. The correct understanding of the economics of this crisis is essential to provide policy solutions to attenuate its impact. Standard economist tools can also contribute to the understanding of the social factors that contribute to the spread of the disease. With the aim of answering this question, the Managing Editors of Economic Policy are opening a call for papers for a special issue on “The Economics of COVID-19” to bring together the best ideas to inform the debate and provide high-impact policy advice.

Gros, 22 April 2020

Consensus is forming in Europe that a united response to the coronavirus crisis is needed. Multiple proposals for a ‘solidarity fund’ have been made, along with suggestions for how to finance it. This column argues that a one-time EU-wide levy on financial assets could raise €300-400 billion, and thus finance a European Solidarity Fund. This levy would be non-distortionary, could be implemented quickly through financial intermediaries, and would avoid the need for controversial Coronabonds.

Hupkau, Petrongolo, 22 April 2020

The social distancing and lockdowns associated with the COVID-19 crisis has hit service sectors with frequent interactions between consumers and providers which cannot be done from home. At the same time, it has added education and childcare services to pre-existing home production needs.  This column combines survey data from the UK with occupation classifications to show that that – unlike previous recessions – the current crisis is harming women’s labour market prospects more than those of men and that women are also likely to be on the receiving end of the bulk of increased home production requirements.

Koczan, Plekhanov, 22 April 2020

While flexible labour markets normally facilitate economic adjustment during crises, recent Google search data suggest that the widespread Covid-19 lockdowns may impede this adjustment process. This column explores how labour market structures may determine how employment levels across middle-income countries are affected by the shock. The impending job and income losses are likely to be most severe where fewer people have permanent contracts, where many are self-employed, and where more people work for small firms and in retail. In the long term, these asymmetric impacts may further increase the demand for public-sector jobs.

Queisser, Adema, Clarke, 22 April 2020

Unlike most previous economic crises, this crisis has the potential to do disproportionate damage to women’s jobs and incomes. This column describers how confinement and distancing measures are threatening to shatter several female-dominated industries, including retail, accommodation services, and food and beverage service activities. This puts many women’s jobs at risk. And even when they do not work in ‘at-risk’ industries, many women are struggling to balance work with the additional care responsibilities caused by school and childcare closures. When formulating policy responses to the crisis, it is crucial that governments do not ignore the impact the crisis can, is, and will have on women’s lives. 

Hauptmeier, Holm-Hadulla, Nikalexi, 22 April 2020

In many parts of the world, the economic fortunes of poorer and richer regions have drifted apart over recent years, triggering debate on how to explain and address this trend. This column adds a further angle to this debate: the link between monetary policy and regional inequality. Using data on economic activity at the city and county level in Europe, it documents pronounced heterogeneity in the regional patterns of monetary policy transmission. As a consequence of this heterogeneity, monetary policy tightening aggravates regional inequality and policy easing mitigates it. The COVID-19 crisis may temporarily reinforce regional inequality.

Ciminelli, Garcia-Mandicó, 22 April 2020

Among the many unknowns about COVID-19 are its true mortality rate and the speed at which it spreads across communities. This column analyses daily death registry data for a sample of 1,161 Italian municipalities in the seven regions most severely hit by COVID-19.  The findings suggest that the virus may have killed 0.1% of the local population in just over a month and that its mortality is vastly underreported in official statistics, plausibly by a factor of two. But there is also good news for policymakers – in the Veneto region, which has embraced mass testing, contact tracing, and at-home care provision, COVID-19-induced mortality is significantly lower than in neighbouring Emilia-Romagna and Lombardia.

Overman, 22 April 2020

The economic crisis caused by COVID-19 will play out unequally across areas. Unfortunately, the unusual nature of this crisis makes its local impacts hard to predict. This complicates attempts to formulate appropriate area-based policy responses. This column focuses on the UK and argues that, in the short run, we will need to target immediate support through existing mechanisms to reach people who are most vulnerable to the impacts of the current crisis. Doing this will also help the most vulnerable communities where these people live.

Cummins, Kelly, Ó Gráda, 21 April 2020

Between 1563 and 1665, London experienced four plagues that each killed one fifth of the city’s inhabitants. This column uses 790,000 burial records to track the plagues that recurred across London (epidemics typically endured for six months). Possibly carried and spread by body lice, plague always originated in the poorest parishes; self-segregation by the affluent gradually halved their death rate compared with poorer Londoners. The population rebounded within two years, as new migrants arrived in the city “to fill dead men’s shoes”.

Bircan, Koczan, Plekhanov, 21 April 2020

Small businesses, especially in retail and services sectors, which account for the vast majority of employment in the European region, have borne the brunt of the COVID-19 crisis. This column provides estimates of job displacement and surveys the policy measures taken by 38 emerging economies in Europe, Central Asia, and the Southern and Eastern Mediterranean in response to the economic disruptions. Given the predominance of small businesses in employment, job displacement rate in many of these economies is expected to reach 30%.  In the presence of constraints on fiscal measures and limited administrative capacity to disburse funding, second-best measures such as price control have been implemented widely.

Perotti, 21 April 2020

In response to the pandemic, several proposals have been advanced to mobilise large amounts at the European level, mostly to address the needs of periphery countries. This column argues that because these proposals do not take into account the preoccupations of core countries, the outcome is likely to be general disappointment and recriminations. It offers an alternative proposal, based on the notion that periphery countries are much better equipped to make it on their own than is commonly thought, with a little help from the ECB.

Toda, 21 April 2020

The COVID-19 epidemic will not end until populations acquire herd immunity either because a vaccine is developed or a sufficiently large share of the population has been infected and recovered. This column argues that the draconian mitigation measures currently taken by many governments may be suboptimal because they prevent the building of herd immunity while incurring significant economic costs. A more targeted approach, such as that of Sweden or ‘optimally delayed mitigation’, may be preferable.

Tørsløv, Wier, Zucman, 21 April 2020

Despite the legal frameworks and large amounts of lost tax revenue, profit-shifting practices persist around the world. This column argues that fiscal authorities of high-tax countries face an incentive problem in combatting profit shifting to tax havens. Enforcement efforts are focused on relocating profits booked in other high-tax countries rather than those in tax havens. This can ultimately result in lower global tax payments of multinational companies. The results call for a global corporate tax reform in order to save resources that currently go to wasteful and inconsequential tax enforcement.

Chambers, 21 April 2020

Keynes amassed an extensive collection of fine art during his lifetime. David Chambers tells Tim Phillips what the financial returns on his investment have been, and the insight this gives us into how to value an art portfolio as an asset. 

Hevia, Neumeyer, 21 April 2020

Emerging economies must navigate the COVID-19 pandemic amid collapsing exports, dwindling remittances and tightening international credit conditions. This column argues that developing countries will be harder hit by the pandemic as many policy measures to fight it will be less effective. One important reason is that their governments will have difficulties to issue debt to smooth the COVID-19 shock as they struggle to credibly commit future tax revenues to pay for a fiscal expansion today. Given this, it is vital that economists and epidemiologists work together on coordinated health and economic policy responses to COVID-19 designed for developing countries. 

Bolton, Buchheit , Gourinchas, Gulati, Hsieh, Panizza, Weder di Mauro, 21 April 2020

Many low- and middle-income countries may face problems servicing their external debts while addressing the COVID-19 emergency. Urgent action is needed to prevent disorderly defaults and litigations. This column presents a mechanism to implement a debt standstill which would free significant resources to cover some of the most immediate costs of the COVID-19 crisis.

Goy, van den End, 20 April 2020

The lockdown of economies during the COVID-19 crisis creates conditions in which private sector demand may fall unboundedly while precautionary savings increase. This column argues that the crisis will push down the equilibrium real interest rate further, which has been trending down since the 1980s. However, higher government spending to combat the crisis could counter this trend. The overall effect on the equilibrium interest rate will depend partly on the extent to which the increasing public debt can provide the private sector with a safe asset for holding precautionary savings.

Comunale, 20 April 2020

The concept of shock dependency of the pass-through emerged from an understanding that exchange rate movements, driven by different shocks, can have different effects on prices. This column attempts to shed a light on shock-dependent exchange rate pass-through for the euro area and its member states by drawing comparisons and looking at the robust results across the available structural empirical frameworks and theoretical models. It finds that different domestic and global shocks can be associated with widely different pass-throughs, but these are similar across models, with the largest value experienced in the case of monetary policy shocks. 

Arezki, 20 April 2020

COVID-19 will precipitate ‘peak demand’ for oil with dramatic consequences on oil-exporting countries in the short and medium run. This column provides a perspective on the role of monetary policy in these countries at different horizons. In the short run, (independent) monetary policy should flexibly target inflation. In the medium run, central banks need to coordinate with fiscal authorities to ensure that monetary policy operates around a credible and sustainable fiscal anchor. In the long run, central banks should beware of the existential threats posed by new risks related to stranded assets.

Rieder, 20 April 2020

Since mid-March 2020, countries have seen consumers panic buying large quantities of groceries in reaction to the COVID-19 pandemic. Why does panic buying arise and how may one mitigate its negative consequences? This column examines the Bank of England’s response to financial crises during the 19th century and suggests that a key action is to counter those incentives that turn panic buying into a rational strategy.

d'Avernas, Vandeweyer, Darracq Pariès, 20 April 2020

How does the presence of ‘shadow banks’ – non-bank, unregulated financial intermediaries – affect the ability of central banks to tackle a liquidity crisis? To address this question, this column develop an asset pricing model with both bank and non-bank financial institutions. A crucial part of the model is that banks intermediate liquidity between the central bank and non-banks, but this intermediation stops during a financial crisis. Non-banks are then left without a lender of last resort, and central bank liquidity operations with banks are not sufficient to mitigate the crisis. In the stylised model, opening liquidity facilities to non-banks and purchasing illiquid assets are then essential measures to tackle a liquidity crisis.

Karlson, Stern, Klein, 20 April 2020

Sweden has largely bucked the lockdown trend, leaving much to the discretion of individual citizens. This column offers an account of some of the institutional and cultural underpinnings of Sweden’s COVID regime, and attempts to explain why the country has opted for a relatively permissive approach.

Bénassy-Quéré, Marimon, Martin, Pisani-Ferry, Reichlin, Schoenmaker, Weder di Mauro, 20 April 2020

The EU has been slow to formulate its response to the Covid crisis. Fortunately, things have started to change. The EU’s leaders should finish work on the new borrowing facilities, first by clarifying the maturities of the borrowings, and second by being prepared to beef up their amounts if needed. It is also crucial to find ways to jointly finance priority action and to provide support to countries worst affected by the crisis in order to restart their own economies. The objective of a Recovery Initiative should be to repair and reconstruct the EU economy: to repair corporate balance sheets and value chains; and to reconstruct the economy on a new, sustainable basis through investment in common public goods such as research, resilience, and the greening of the economy. This will involve targeted investment, coordinated restructuring in some sectors, and the introduction of an equity fund to help SMEs survive the crisis. 

Ehrentraud, Garcia, 19 April 2020

Technological innovations in financial services are affecting every sector of the financial industry and generating a surge of new applications. This column takes stock of the policy responses to fintech developments in approximately 30 jurisdictions worldwide and proposes a novel conceptual framework – the ‘fintech tree’ – that distinguishes three categories: fintech activities, enabling technologies, and policy enablers. Designing a policy framework for fintech will require finding a balance that maximises its benefits while minimising potential risks to the financial system.

Benigno, Foerster, Otrok, Rebucci, 19 April 2020

Borrowing constraints can amplify business cycle dynamics and create significant challenges for countries facing negative economic shocks. Based on a new estimated model of sudden stop crises, this column argues that financial crises are often followed by a quick but partial rebound. Thereafter, economies can experience a very protracted period of stagnation. A similar trajectory may be likely for the current COVID-19 crisis, as many countries will face financial frictions in responding to the economic downturn.

Alon, Doepke, Olmstead-Rumsey, Tertilt, 19 April 2020

The lockdowns triggered by COVID-19 are taking a disproportionate toll on women in the labour market, as the sectors with high rates of female employment are experiencing heavier job losses while increased childcare needs during school closures exert an outsized impact on working mothers. Still, this column finds reason to hope that by promoting flexible work arrangements and putting the childcare obligations of both genders into plain sight, the crisis may reduce labour-market barriers in the long run.  

Braggion, Frehen, Jerphanion, 19 April 2020

How does cheap credit feed into investors’ behaviour? Cheap credit could boost stock prices, even without trading, by lowering the cost of capital. However, it might also enable naïve investors to ride a bubble and lose money. To see what effect prevails, this column collects every stock transaction for three major British companies during the 1720 South Sea Bubble. It finds that loan holders are more likely to buy following high returns, subscribe to overvalued share issues and incur large trading losses.

García-Montalvo, Piolatto, Raya, 19 April 2020

Tax evasion is a persisting problem across countries, with fraudulent behaviour especially common in the real estate sector. This column argues that tax authorities should use appraisals to identify potentially fraudulent real estate transactions. Transactions with an appraisal value that is low compared to the sales value are shown to have a higher likelihood of involving fraud. This is because low appraisals indicate an unconstrained buyer who, in contrast to a liquidity constrained buyer, is able to afford an (illegal) side payment to lower the sales value and thus the tax payment without resorting to a high mortgage.

Enke, Graeber, 18 April 2020

When making economic decisions, people are often aware that they do not know the optimal thing to do. Traditional models of economic decision-making do not account for this ‘cognitive uncertainty’. This column argues that cognitive uncertainty predicts economic actions and beliefs because, in binary settings, it induces people to implicitly compress probabilities towards a 50:50 ‘mental default’. This partially explains behavioural anomalies in choice under risk, choice under ambiguity, belief updating, and survey forecasts of economic variables.

Ahsan, Panza, Song, 18 April 2020

While the relationship between trade and war is ambiguous, some argue that diminished trade can pose a threat to global peace by lowering both the opportunity costs of war and the cost of raising an army. This column examines the relationship between Atlantic trade and war in Europe between 1640 and 1896, a period in which intra-European conflict decreased dramatically. It finds that the growth in Atlantic trade lowered the probability of intra-European conflict by 15 percentage points.

Pierri, Timmer, 18 April 2020

Technology adoption in lending can enhance financial stability through the production of more resilient loans. Motivated by the recent surge of FinTech lending, this column analyses the implications of lenders' information technology adoption for financial stability. Banks that adopted IT more intensely before the Global Crisis were significantly more resilient when the shock hit. These banks had significantly fewer non-performing loans, and issued more loans during the crisis itself. Loan-level analysis indicates that high IT adoption banks issued mortgages with better performances and did not offload low-quality loans.

Esteves, Sussman, 18 April 2020

After an initial lull, financial markets reacted with a vengeance to the COVID-19 pandemic. Comparisons with 2008 are inevitable, but the ultimate impact on markets is still unclear. This column argues that the spread of the pandemic has little explanatory power over financial stress. Markets reacted as in any international financial crisis by penalising emerging economies (and countries without credible monetary anchors), exposing age-old vulnerabilities. This finding highlights the need for credible, but flexible, sovereign currencies and the need to build up liquidity reserves.

Motta, Peitz, 18 April 2020

State aid is essential to reduce long-run harm to the EU economy as a result of the Covid-19 crisis. However, non-harmonised programmes across EU member states generate serious risks to the functioning of markets, particularly if they go beyond short-term liquidity provision or employment support. This column suggests imposing strict conditions on state aid for recapitalisation of firms and argues in favour of an EU-wide programme for critical sectors. Such a programme would prevent harmful market distortions and maintain a level playing field for EU companies.

Masciandaro, 18 April 2020

In every crisis, economists will tell us that it is time for helicopter money, and Covid-19 is no different. But the helicopters never seem to take off. Donato Maschiandaro tells Tim Phillips why not.
Read about helicopter money in Issue 7 of Covid Economics.

Takeda, Keida, 17 April 2020

Communication strategies are increasingly seen as an important tool for central bankers to guide expectations. This column applies statistical natural language processing algorithms to press conferences given by two different governors of the Bank of Japan during a time without any formal changes in institutional arrangements for communication policy at the Bank. Communication strategies are found to differ vastly across the two governors, with one governor focusing on the topic of ‘discretion’ and the other on the topic of ‘policy goals’.

Garriga, Famiglietti, 17 April 2020

The private real estate market could be severely affected by the COVID-19 pandemic. The health crisis coincides with the period of the year when the market is typically most active. This column examines how the epidemic might affect the liquidity and pricing of housing and mortgage rates. It finds that lower demand for housing while supply is at a historically high level is likely to have an adverse impact on the start of the spring house hunting season. If the economic fallout from COVID-19 continues longer than a few months, more expansive protections may be required.

Ravikumar, Vandenbroucke, 17 April 2020

This column uses the actual number of COVID-19-related deaths to calculate projections for the US based on other countries’ experiences.

Lyons, Viswanath-Natraj, 17 April 2020

Does stable coin issuance have an inflationary effect on cryptocurrency prices such as Bitcoin? This column argues that aggregate stable coin issuance does not drive crypto prices, in contrast to claims from previous studies. Instead, it claims that issuance behaviour can be explained as maintaining a decentralised system of exchange rate pegs and acting as a safe haven in the digital asset economy. The latter can be demonstrated by the significant stable coin premiums during the COVID-19 panic of March 2020.

Ilzetzki, Reichardt, 17 April 2020

Countries worldwide are scrambling to procure medical supplies in response to the COVID-19 pandemic. Several governments have called on non-specialist firms to produce medical ventilators. This column draws three lessons from US munition production in WWII. First, ramping up production takes time, particularly for non-specialist producers. Second, international cooperation is needed to share knowledge on production technology and supply chains. Third, direct public investment in plant expansions should be part of the strategy.

Lilley, Rogoff, 17 April 2020

In the aftermath of the Global Crisis, conventional monetary policy has been constrained by low interest rates in many major economies. This has spurred debates on the possibility of introducing negative interest rates in the monetary policy toolkit. This column uses evidence from the US to show that not only do the markets expect the low interest rates to persist into the future, but they also expect the use of negative interest rates down the line. Moreover, markets no longer believe that even quantitative easing can bring inflation to target, which leaves very few alternatives for monetary policy apart from negative interest rates.

Bignami-Van Assche, Ghio, Assche, 17 April 2020

It is well understood that COVID-19 severity varies with age. However, little consideration has been given to the differential trend of infections across age groups. By drawing from the Italian experience, this column shows how the effectiveness of strategies to ‘flatten the curve’ of COVID-19 infections crucially depends on workforce demographics. It suggests that restricting the age of essential workers may be useful to mitigate the work–security trade-off while keeping the economy going.

Gross, Guirkinger, Platteau, 16 April 2020

For many regions around the world, geographic isolation is the primary cause of seasonal fluctuations in the price and availability of foodgrain. To activate the local food market, dampen such fluctuations, and improve people’s nutritional status, Burkina Faso’s Food Security Granaries programme set up village-level cooperatives and put them in charge of buying grain from outside sources and selling it locally. This column assesses the effects of the intervention and finds that market activation considerably reduced nutritional stress, especially among young children. The nutritional improvement is driven by a change in the timing of food purchase and hence, of consumption.

Bolatto, Naghavi, Ottaviano, Zajc Kejžar, 16 April 2020

Contracting institutions have proved to be pivotal for supply chain organisation, and empirical evidence has shown that firms rely on outsourcing to deal with hold-up inefficiencies induced by contract incompleteness. For intangible assets, vertical integration is one strategy to prevent knowledge dissipation. This column presents new research that illustrates how firms organise their value chain and their ‘knowledge’ under imperfect protection of intellectual property rights. The results suggest that the quality of institutions protecting tangible and intangible assets may have opposite effects on organisational choices along the supply chain.

Levy Yeyati, Sartorio, 16 April 2020

The policy tools being used to stabilise incomes during the COVID-19 lockdowns will provide job and payment protection for formal, salaried workers. But in the developing world, these workers account for only half of the labour force. This column looks at the other half: the ‘independent’ workers who have not only seen their incomes reduced, but who possess few of the benefits tied to jobs – from reliable hours to severance pay and social security. If disparities in labour markets go unaddressed, the pandemic will deepen the toll on poverty and inequality.

di Mauro, Syverson, 16 April 2020

The world went into the COVID crisis in the midst of a 15-year-long productivity growth slowdown. This column considers the channels through which the crisis might shift the growth rates of productivity and output. Globalisation, labour mobility and small firms may all fall victim to the crisis if the world does not succeed in reopening borders, refraining from trade and currency wars and focusing on policies to boost productivity. On the upside, the broad adoption of new technologies – such as IT skills during the epidemic – and strong reallocation pressures may provide an independent boost on productivity as we come out of the crisis.

Cernat, Kutlina-Dimitrova, 16 April 2020

The Trump administration is reportedly dissatisfied with international public procurement and the benefits derived from the US membership of the WTO Government Procurement Agreement. This column argues that US estimates of a huge deficit with the EU in government procurement misrepresent the level of EU openness by only looking at the ‘tip of the procurement iceberg’. In these critical times, improving the factual basis and the data reporting processes to ensure that all GPA members are fully informed about the benefits of international public procurement openness is more important than ever. 

Durante, Guiso, Gulino, 16 April 2020

Social distancing slows the spread of COVID-19. In regions that adopt social distancing practices early (i.e. before receiving explicit stay-at-home guidelines from their governments), the virus can be contained more quickly. Using Italian data from phone location tracking of movements made by individuals after the pandemic began, this column finds sharper drops in mobility in areas with higher ‘civic capital’, suggesting that civic values can mediate the social distancing process.

Inoue, Todo, 16 April 2020

Cities and regions around the world are in lockdown in an attempt to contain the spread of Covid-19. This column examines how the economic effect of the lockdown of a city can propagate to other regions in the country, focusing on the case of Tokyo. The findings suggest that if Tokyo were to be locked down for two weeks, the loss in value added production in the city would be 4.3 trillion yen, while the production loss in the rest of Japan due to propagation through supply chains would be 5 trillion yen. In addition, the effect on other regions becomes progressively larger as the duration of the lockdown grows.

Horn, Meyer, Trebesch, 15 April 2020

The introduction of European Coronabonds is sometimes described as an unprecedented step that would create a dangerous precedent of debt mutualisation. This column shows that this view is wrong and ignores the history of European financial cooperation. Since the 1970s, the European Commission has placed more than a dozen community bonds on private markets, which were guaranteed by the member states and distributed to countries in crisis. These bonds have been fully repaid in the past. Coronabonds with joint and several liability go a step further, but they would stand in a long tradition of European financial solidarity and cooperation.

Gobbi, Palazzo, Segura, 15 April 2020

Most governments have introduced temporary credit guarantees to ensure banks can provide the liquidity needed by firms during the Covid-19 crisis. This column argues that these policies create incentives for banks to foreclose guaranteed loans maturing close to the expiration date of the guarantee scheme. This hidden effect is worse for firms whose debt is set to substantially increase during the pandemic. To avoid foreclosure ‘waves’ on the eve of the public guarantee termination, complementary measures that reduce firms’ debt burden should also be adopted.

Accetturo, Cascarano, de Blasio, 15 April 2020

From the 16th to the early 19th century, coastal areas of Italy (especially in the south-west) were subject to attacks by pirates launched from the shores of northern Africa. To protect themselves, residents of coastal locations moved inland to mountainous and rugged areas. This column shows how relocation constrained local economic development for a long period after the piracy threat had subsided and may have had aggregate consequences on Italy’s post-WWII development.

Vihriälä, 15 April 2020

The high level of public debt in the euro area and doubts over debt sustainability in some member states mean that the fiscal expansion necessary to counter the Covid crisis will be challenging. This column argues for debt relief by the ECB that would allow all member states to finance the necessary fiscal measures in a normal fashion. While effectively forgiving past debt would create expectations that the same could happen again in the future, this moral hazard should be weighed against what is likely to happen without such relief. 

Gambacorta, Rosolia, Zanichelli, 15 April 2020

Household incomes are bound to be severely hit by the lockdowns imposed across the world in response to the COVID-19 pandemic. This column uses survey data on European households’ balance sheets to demonstrate that across European countries there are large (and similar) shares of the population that are likely to suffer from the economic fallout of containment measures – albeit through different channels – and that, were the lockdowns to last three months, might not have sufficient financial resources to maintain a minimum threshold of wellbeing.

Dhingra, Tenreyro, 14 April 2020

Nearly 80% of the world’s poorest inhabitants live in rural areas and labour in agriculture. Because they lack the productive assets or infrastructure needed to market their produce, strategies intended to encourage agribusinesses-led development of such markets rank high on many policy agendas. Still, systematic studies of the efficacy of these policies remain scarce. This column examines the impact that promoting agribusiness-participation in crop markets has made in Kenya, and concludes that such policies are no panacea for low agricultural incomes.

Laffitte, Martin, Parenti, Souillard, Toubal, 14 April 2020

National healthcare and other public services, currently under increasing pressure due to the COVID-19 pandemic, have been underfunded in many countries, an issue that has likely been exacerbated by corporate tax avoidance. Some multinationals that have been avoiding corporate taxes for years are about to be bailed out by national governments, arousing a public sentiment of unfairness. This column argues that setting a minimum effective tax rate on the global profit of multinational companies would tackle these concerns.

Yano, 14 April 2020

Data are the new resource in the modern production process. Building a high-quality market where this resource is shared, distributed, and used requires first establishing its ownership. This column argues that blockchain technology can be harnessed to effectively assign data ownership and develop a healthy cyber ecosystem. Ensuring the rights of individuals who generate data is crucial to preventing unnecessary erosions of market quality. However, forming a healthy ecosystem will not happen spontaneously, and will require careful planning and the expertise from multiple fields.

Hartl, Wälde, Weber, 14 April 2020

Containment measures have been in place in Germany since the middle of March in response to the COVID-19 pandemic. This column examines the impact of these measures on the spread of the virus. It finds a reduction in the growth rate of COVID-19 seven days after the implementation of the policies on 13 March and again eight days after the implementation of further measures on 22 March. 

Krahnke, 14 April 2020

Fears of a next wave of emerging market debt crises recently sparked a renewed debate about the adequacy of IMF resources and its toolkit. This column argues that the issue is not whether the IMF has sufficient resources for large-scale financial assistance to all of its members in need, but that such assistance would ultimately be counterproductive and could, in fact, exacerbate the risk of liquidity crises morphing into solvency crises. One of the reasons is that large-scale IMF financial assistance coupled with the IMF’s preferred creditor status can lead to a crowding-out of private investors by increasing their expected loss in the event of default. This underlines the need for all elements of the international monetary and financial system to assume their full responsibility, including the private sector.

Jessen, Waights, 14 April 2020

The COVID-19 outbreak has forced schools and day care centres to close their doors. In response, many parents are now juggling housework and paid work with a sudden increase in child care responsibilities. To understand how parents might reallocate their time in the current situation (for which we do not yet have data), this column uses evidence from a 2012-2013 study of parents in Germany, and compares the time diaries of those whose youngest child had a place in day care to those whose youngest child remained at home. 

Coibion, Gorodnichenko, Weber, 14 April 2020

The Covid-19 crisis in the US and the policy responses have led to unprecedented numbers of initial claims for unemployment, but there are concerns that total job losses are being understated. This column uses a repeated large-scale survey of households in the Nielsen Homescan panel to show that job loss has been significantly greater than implied by new unemployment claims, with an estimated 20 million jobs lost by 8 April – far more than were lost over the entire Great Recession. Many of those who have lost their jobs are not actively looking to find new ones.

Gollier, Straub, 13 April 2020

What should we be willing to sacrifice in wellbeing in order to guard collectively against very infrequent but extraordinarily intense events? This column asks this question in the context of France’s preparation for a pandemic, and argues that the allocation of public investments should be reviewed using scientifically based evaluation tools under uncertainty, using asset pricing theory, decision theory and real option valuation.

Atashbar, 13 April 2020

There is a growing trend as well as increasing public pressure in developing or emerging economies to follow the US and EU-led approaches to dealing with the coronavirus pandemic, without considering local economic settings. This imitation may lead to a worsening of the situation, especially if the pandemic were to last for a longer period of time. This column proposes a framework for a safer policymaking approach, especially for countries with a tighter policy space. Policy responses should be evaluated based on how the resources are generated and spent using a set of pre-defined criteria. 

Leibovici, Santacreu, Peake, 13 April 2020

The COVID-19 pandemic is creating a massive shortage of medical equipment. To face the health crisis, the US needs to increase its supply of protective equipment, and equipment needed to treat infected patients. This column studies the extent to which the US relies on other countries to supply its demand for critical medical goods. Given its heavy reliance on other countries also affected by COVID-19, the US might need to urgently design policies to boost its production of these goods.

Baker, Bloom, Davis, Terry, 13 April 2020

While assessing the economic impact of COVID-19 is essential, it is challenging due to the extreme speed with which the crisis unfolded. This column uses three forward-looking uncertainty measures to quantify the enormous increase in economic uncertainty over the past weeks. Feeding these COVID-induced uncertainty shocks into a model of disaster effects predicts a year-on-year contraction in US real GDP of nearly 11% as of 2020 Q4.  About 60% of the forecasted output contraction is estimated to be due to COVID-induced uncertainty. 

Janke, Lee, Propper, Shields, Shields, 13 April 2020

The impact of COVID-19 on the economy will affect not just people’s incomes but also their health. This column examines the effect of this economic downturn on the incidence of long-term chronic ill health in the UK. Such conditions affect one in three people of working age. The findings suggest that the economic downturn could result in around 900,000 more people of working age developing a long-term chronic condition. The impact will be worse in areas that already have higher unemployment. 

Cliffe, 13 April 2020

The Covid-19 pandemic is not yet under control. But is already clear that when it is over, policymakers will face a transformed landscape. Even radical new interventions will not prevent structural economic damage, and the combination of divisive nationalism, increased risk aversion and the need to build resilience will weigh on economic growth. But resilience will also call for accelerated use of digital technology and harnessing societal pressure for more sustainable and social approaches will present opportunities for smarter, more far-sighted governments and institutions.

Baldwin, 13 April 2020

Governments are thinking about ways to exit the COVID containment policies currently in place. While ‘exit’ is too optimistic of a word, the necessity is clear. This column argues that we should not think of this as a ‘dollars versus deaths’ trade-off, but rather as a constrained optimisation with two conflicting imperatives: keeping containment stringent enough to achieve the medical imperative, but lax enough to avoid overstretching citizens’ tolerance. Remobilising the workforce is a key element of the latter. This column uses the two-constraints approach that I introduced last week to think ahead about the various exit strategies.

Baksa, Munkacsi, Nerlich, 12 April 2020

Ageing populations can transform the composition of an economy’s labour force and threaten the stability of its pension system. This column examines the possible effects of reversing the recent pension reforms adopted since the early 2000s. It appears that reversing past pension reforms would be very costly and would put a disproportionate burden on current and future young generations. Even without reversals, further reforms are needed to address the adverse macroeconomic and fiscal impact of population ageing.

Chien, 12 April 2020

Relief cheques are part of the plan adopted by the US Congress to help households weather the COVID-19 pandemic. This columns asks how long such relief might last. It finds that relief cheques are not likely to last very long - between four to eight weeks. Extending the coverage of unemployment insurance could be more effective in addressing income shortages.

Biancotti, Rosolia, Venditti, Veronese, 12 April 2020

The COVID-19 lockdown will negatively impact businesses and households around the world not only through its direct effects on economic activity and employment, but also indirectly by the disrupting the flow of crucial information. This column suggests some channels through which national statistical institutes and other public agencies, private data brokers, and Big Tech companies can harness the full potential of their access to data.

Michaillat, Saez, 12 April 2020

A lower unemployment rate puts more people into work, but it also makes it harder for businesses to fill their vacancies. This column explores the trade-off between unemployment and vacancies, as captured by the Beveridge curve – a measure which can then be used to estimate the socially efficient unemployment rate for the wider economy. The analysis suggests that the US unemployment rate of 3.5% just before the coronavirus crisis was just about efficient. 

Scarpetta, Queisser, Garnero, Königs, 12 April 2020

Many of the challenges posed by the unfolding COVID-19 crisis are unprecedented; they will require a package of unprecedented policies in response. Containing the pandemic while protecting people from it remains the top policy priority, but disrupted supply chains, containment measures that limit economic and social interactions, and falling demand also put people’s jobs and livelihoods at risk. This column highlights the employment and social-policy measures that governments can take to soften the pandemic’s blow for workers, households, and businesses.

McCauley, Schenk, 12 April 2020

A major source of vulnerability during global financial crises, both in the past and at present, is the severe shortage of US dollar funding around the world. This necessitates extensive central bank cooperation, in the form of central bank swap lines and other innovative solutions, to relieve the strain on dollar liquidity. This column evaluates the close cooperation between the Fed, BIS and other central banks in response to a strained eurodollar market in the 1960s, and compares this to other episodes in the 1990s, 2008 and 2020. The wide system of swaps that existed in the past amounted to a global financial net aimed at managing dollar liquidity and stabilising exchange rates.

Caron, Fally, Markusen, 11 April 2020

Economists typically look to production and trade in order to explain various empirical phenomena. However, recent research has emphasised the role of demand in understanding several remaining empirical puzzles. This column discusses the implications of demand for the skill-premium puzzle. Goods and services with high income elasticities of demand are systematically skilled-labour intensive in production. Simulations then show that neutral productivity growth and/or falling trade costs increase the skill premium for virtually all countries. These results are particularly important for understanding why skill premia have increased in most developing countries, contrary to predictions from standard trade models. 

Coelho, Restoy, Zamil, 11 April 2020

Regulatory divergence in the banking sector, including differences in how jurisdictions apply Basel III and other regulatory standards, could be a significant source of market fragmentation. Unwarranted divergence in prudential requirements may discourage cross-border activities, international capital flows, and global risk-sharing. This column identifies three main sources of regulatory fragmentation in the post-Basel III era and proposes policy measures to reduce excessive discrepancies in the application of global banking rules. Maintaining trust in banks’ financial health is crucial in periods of economic and financial disruption – such as the COVID-19 pandemic.

Faria e Castro, 11 April 2020

Workers will inevitably be laid off as a result of measures implemented to limit the spread of COVID-19. This column estimates what the unemployment rate may be at the end of the second quarter of 2020, by combining different types of statistics on industry and occupation composition. It finds that over 52 million people could be unemployed, with a 32.1% unemployment rate.

Muellbauer, 11 April 2020

The coronavirus pandemic has triggered unprecedented shocks to both supply and demand, raising important questions about the impact on US consumer spending. In the US, consumption comprised as much as 70% of GDP in 2019. Typically, consumption is less volatile than income. But as this column argues, it is now likely to fall even more than household income. One reason is that part of the negative shock originates in disruption to consumption itself. Another comes from the jump in income insecurity as reflected in an unprecedented rise in the unemployment rate. Other reasons include the fall in asset prices and a sharp contraction in credit availability. A plausible scenario from the analysis suggests that US real consumer spending in the second quarter of 2020 could fall by around 20%, if household labour income falls by 16%.

Tille, 11 April 2020

The adoption of a debt brake rule in the late 1990s has led to a reduction of Swiss government debt. In fact, Switzerland seems to have a problem of too little debt. This column argues that instead of reducing its debt level further, which in the current configuration amounts to investing at a negative interest rate, Switzerland has several more appealing options.

Accominotti, Briere, Burietz, Oosterlinck, Szafarz, 10 April 2020

For many years, globalisation was on the march, bringing with it the increased risk of financial contagion effects. The Global Crisis reversed this expansion and highlighted the vulnerabilities intrinsic to the globalised international economy. This column takes a historical approach to the debate, analysing how patterns of globalisation and contagion have changed over time. The patterns also suggest that the ongoing Covid-19 pandemic is likely to cause another enormous ‘stress test’ for globalisation, forcing firms and nations to limit traveling and trade, perhaps leading to a reevaluation of the international system.

Bambalaite, Kleiner, Nicoletti, von Rueden, 10 April 2020

Occupational licensing regulations have increased in country after country over the last several decades. Yet, the impact of this important economic trend has been largely overlooked by policy makers. Using novel cross-country data on a wide set of personal and professional services, this column presents evidence on the scope and implications of these regulations, with a special focus on their effects for firm-level productivity.

Vaitilingam, 10 April 2020

The lockdowns in place around the world to limit the contagion of Covid-19 have been implemented without reliable information on the spread of the disease or the prevalence of the novel coronavirus in the population. The IGM Forum at Chicago Booth invited its panel of leading US economists to express their views on the role of testing for infections and antibodies to inform decisions about easing measures on social distancing and allowing the return of public activities. This column reveals a strong consensus among the experts on the value of random testing to establish baseline levels of the virus, and near unanimity on the need for a massive increase in testing capacity as part of a clear strategy for an economic restart.

Bowles, Carlin, 10 April 2020

Like the Great Depression and WWII, the COVID-19 pandemic (along with climate change) will alter how we think about the economy and public policy, not only in seminars and policy think tanks, but also in the everyday vernacular by which people talk about their livelihoods and futures. It will likely prompt a leftward shift on the government-versus-markets axis. But more important, it may overturn that anachronistic one-dimensional menu of policy alternatives by including approaches drawing on social values going beyond compliance and material gain to include ethical motivations of solidarity and duty that underpin community.

Baldwin, 10 April 2020

The world is at war with COVID-19; containment policies are a key weapon. But this in not ‘total war’ where trade-offs can be waved off; governments must perform balancing acts. This column argues that instead of thinking of containment stringency as balancing dollars versus deaths, we should think of it as a balancing infections versus tolerability. Containment policies must stay in the ‘corridor’ where they are stringent enough to avoid overwhelming hospitals, but lax enough to avoid overwhelming citizens’ tolerance levels. Solving the dilemma will require an increase in production and a relaxation of constraints – in short, it will involve a partial remobilisation of the workforce. The mission-critical task facing us is to develop a strategy for remobilising workers without risking a medical overload.

Morikawa, 10 April 2020

Japan, similar to many countries hit by the COVID-19 shock, has experienced a sudden increase in people working from home. This column exploits the teleworking arrangements implemented at the author’s workplace to investigate the impact on productivity. In a survey, workers indicate that they are, on average, less productive at home than in the office. While some of the reasons for this, such as lack of familiarity with remote access software, will fade over time, other factors suggest that a productivity gap will remain.

Blanchard, Pisani-Ferry, 10 April 2020

The extraordinary operations that are under way in most countries in response to the COVID-19 shock have raised fears that large-scale monetisation will result in a major inflation episode. This column argues that so far, there is no evidence that central banks have given up, or are preparing to give up, on their price stability mandate. While there are obviously some reasons to worry, central banks are doing the right thing and the authors see no reason to panic.

Alfani, 09 April 2020

The ultimate effects of the COVID-19 pandemic are impossible to foretell. This column examines major plague episodes from the past millennium to draw lessons for the current crisis. The effects of the 14th century Black Death and 17th century plagues were heterogeneous, depending on multiple epidemiological factors and initial conditions. Some regions recovered quickly, while others suffered prolonged economic damage. Dealing with the asymmetric shocks of COVID-19 and preventing similar economic collapse calls for coordination and collective action by affected countries.

Ettmeier, Kim, Kriwoluzky, 09 April 2020

The ongoing COVID-19 pandemic in Europe is severe and spreads economic uncertainty. This column explores the evolution of financial market participants’ expectations during the COVID-19 pandemic, estimating yield curves of bonds in France, Germany, Italy, and Spain. The authors carry out an event study to investigate the potential impact of European fiscal and monetary policy measures on these yields. The results suggest that policy measures must be large and coordinated on the European level, and that fiscal and monetary policy must act jointly to fight the pandemic’s negative economic consequences

Sturzenegger, 09 April 2020

Argentina has been in lockdown since early March. This column points to two questions: Why should workers pay rent when they are banned from selling their labour? Why should the incomes of people with secure jobs be smoothed as much as those who have lost their jobs? In this moment of dire fiscal need, it seems inefficient to transfer money to the relatively well off – especially at a time when they can´t spend it.

Moroni, Nicoletti, Tominey, 09 April 2020

The COVID-19 crisis has closed down schools around the world, leaving parents and guardians to educate their children at home. In this way as in others, the crisis will not affect all families equally, but will cause particular harm to children from low-income and less-educated households. This column suggests that socio-emotional issues in children will be amplified if their home environment is stressful, and suggests some ways that governments can mitigate that stress and support struggling families.

Espitia, Rocha, Ruta, 09 April 2020

The COVID-19 pandemic is increasingly a concern for developing countries. This column shows that most developing countries rely heavily on imports to meet their needs of medical supplies essential to combat COVID-19. Recently imposed export restrictions by leading producing countries could thus cause significant disruptions in supplies for developing countries and might further contribute to price increases of medical supplies. Taking multiplier effects into account, prices for medical supplies are estimated to rise by up to 23% on average. Tariffs and other restrictions to imports further impair the flow of critical products to developing countries.

Boeri, Caiumi, Paccagnella, 09 April 2020

In getting people back to work before a vaccine is developed, policymakers will have to balance medical risks and economic risks. This column presents some calculations on the number of jobs that can be carried out without putting workers at risk of being infected by COVID-19. The findings suggest that the share of jobs that can be performed without putting workers’ health at risk is limited, and probably does not reach 50%. Importantly, this share is even lower in strategic industries that supply the health sector.

Dube, 09 April 2020

The 2014 Ebola outbreak in Sierra Leone affected an area which included a pioneering experiment in community healthcare. Oeindrila Dube tells Tim Phillips about the lifesaving impact of this experiment - and two important lessons we can learn that may help to contain the spread of Covid-19 in Africa.

de Mello, Tovar Jalles, 08 April 2020

The global financial and economic crisis has affected economies and societies, including in the ways governments allocate fiscal, financial, policy and political responsibilities among the different layers of administration. This column describes how, in particular, the crisis was associated with an increase in the subnational shares of general government spending and revenue, which are conventional quantitative gauges of fiscal decentralisation. Effects on subnational authority over politics, policy and fiscal-financial management are more nuanced. 

Heining, Jäger, Schoefer, 08 April 2020

Many countries, especially in Europe, are characterised by shared governance institutions that grant workers formal authority in firms’ decision-making. This column uses a natural experiment: a 1994 reform in Germany that abolished worker-elected directors in certain new firms and permanently preserved them in others, to provide empirical evidence on the effects of shared governance. It finds that shared governance can lead to an increase in capital formation and discusses the mechanisms which may lead to this result.

Adams-Prassl, Boneva, Golin, Rauh, 08 April 2020

The spread of COVID-19 has already had a large negative impact on labour supply and earnings of workers in many countries. In this column, the authors leverage newly collected data from the US and the UK to show that these negative consequences are particularly harsh for younger workers, those with unstable employment relationships and lower labour income. The evidence calls for a quick response from governments in the form of stimulus and labour income replacement packages, and a robust plan to ensure that the younger generation are not permanently disadvantaged.

Low, Pistaferri, 08 April 2020

Disability insurance programmes provide income replacement and medical benefits to workers who face major health shocks impeding their ability to work. The screening error of incorrect acceptance – where individuals who are not disabled are awarded benefits – and moral hazard have been well researched, but scant attention has been paid to incorrect rejection. Using US data, this column shows that the probability of being rejected when disabled varies with a host of observable characteristics. Most strikingly, truly disabled women are 20 percentage points more likely to be incorrectly rejected than observationally equivalent men.

Galeotti, Surico, 08 April 2020

The social distancing policies put in place by governments to control the spread of COVID-19 will not resolve the health crisis permanently, but they will buy valuable time. This column suggests that time be used to gather reliable information about how the virus spreads. Testing a representative sample of the population and linking their medical results to individual socio-demographic characteristics will allow us to identify groups most likely to be affected, thereby informing the design of health and economic policies – starting with the imminent relaxation of social distancing measures.

Ray, Subramanian, Vandewalle, 08 April 2020

On 24 March, the government of India ordered a nationwide lockdown of 1.3 billion people for 21 days as a preventive measure against COVID-19. Given what we know of the epidemic, it is difficult to quarrel with the prescription of social distancing and lockdown, when accompanied by state measures that provide adequate economic protection. This column asks what happens when the state is unable to provide the necessary back-up welfare measures.

Jordà, Singh, Taylor, 08 April 2020

The COVID-19 pandemic is having immediately visible effects on economic activity. The rapid contraction in economic activity, the collapse of trade, and the dramatic increase in the unemployment rate are without precedent. However, pandemics also have less well-understood, longer-run effects on the natural rate of interest – a critical economic barometer and policy marker. This column reveals how historical data since the 14th century on the 15 largest pandemics suggests the real natural rate could drop by close to 1.5 percentage points over the next 20 years, a decline similar to that seen since the 1980s. There are still reasons for guarded optimism about the final death toll of COVID-19 and thus its ultimate economic impact. Perhaps this time may be different.

Merkl, Weber, 07 April 2020

The spread of COVID-19 and the ensuing drastic lockdowns are placing economies and labour markets worldwide in a state of emergency. Governments are struggling to safeguard jobs and firms. Short-time work and comprehensive liquidity support for businesses and the self-employed are some measures being used. This column illustrates the consequences of a substantial hiring stall on unemployment and proposes hiring subsidies – directly reduce firms’ costs and thereby stimulate hiring – as a cost-effective stimulus measure for European countries to reduce the risk of unemployment hysteresis effects.

Schnetzer, Tamesberger, Theurl, 07 April 2020

Due to the global spread of COVID-19, Austria, like many other countries, is facing a massive increase in unemployment. To mitigate the skyrocketing number of unemployed persons, social partners have developed a new model of subsidised short-time work that could become an international role model. The Austrian model allows a temporary reduction in working hours up to 90% while maintaining the employment relationship and granting almost full public wage compensation. This measure can help to bridge the economic outfall as it helps to stabilise demand and fosters a fast return to pre-crisis economic activity. 

Baldwin, 07 April 2020

World trade experienced a sudden, severe, and synchronised collapse in 2008 – the steepest drop in recorded history, and the deepest fall since the Great Depression. This column argues that 2020 will show a trade collapse that is far larger since the ‘COVID concussion’ is both a demand shock and a supply shock while the 2008-09 collapse was driven mostly by a demand shock. Key learnings from the last Great Trade Collapse are highlighted.

Bosio, Djankov, 07 April 2020

European governments are searching for ways to abate the sudden economic shock from the coronavirus pandemic. This column proposes four ideas on lessening the negative effects of the sudden economic shock on private businesses. (1) Governments may defer or waive the collection of corporate and value-added taxes to enhance liquidity. (2) Credit bureaus and registries give governments data on which businesses to target with lines of credit or other financial assistance. (3) Governments can use the procurement system to prioritise publicly funded projects. (4) Businesses should be kept as going concerns through temporary suspension of certain bankruptcy procedures.

Berglöf, Brown, Farrar, 07 April 2020

The gravity and urgency of the entwined COVID-19 public health and economic crises must be reflected in an unprecedented response. In this letter to world leaders, leading global health experts and economists outline what is needed. The two crises require urgent specific measures that can be agreed on with speed and at scale. Both require world leaders to commit to funding far beyond the current capacity of our existing international institutions. The economic emergency will not be resolved until the health emergency is effectively addressed: the health emergency will not end simply by conquering the disease in one country alone, but by ensuring recovery from COVID-19 in all countries.

Dingel, Neiman, 07 April 2020

Evaluating the economic impact of ‘social distancing’ measures taken to arrest the spread of COVID-19 raises a fundamental question about the modern economy: How many jobs can be performed at home? This column describes the results of classifying the feasibility of working at home for all occupations. In the US, 37% of jobs can plausibly be performed at home.

McKibbin, 07 April 2020

When Covid-19 wasn't even on the radar of most policymakers, Warwick McKibbin of ANU used his experience from previous pandemics to create seven scenarios for its impact. All implied a major shock to the global economy. Tim Phillips asks him how his model was able to capture the nature of Covid-19, and which policymakers listened to the warning.

Read about McKibbin's scenarios in Chapter 3 of Economics in the Time of Covid-19.

Beck, 07 April 2020

There has been a lot of discussion in recent weeks on whether an EU-wide fiscal policy response to COVID-19 should include common liability for the additional debt that such a response would imply. This column lays out the arguments in favour of such an approach – arguments that go beyond economic ones.

Erce, Garcia Pascual, Marimon, 06 April 2020

Member states are currently debating how to finance the fight against COVID-19. As time is pressing, practical and readily implementable solutions are needed now. Using the ESM to provide the funds needed is a reasonable and workable way forward. Italy, Spain and other states would benefit from using the ESM access to AAA funding to reinforce their debt dynamics: a combination of loan size, maturity and interest rates would strengthen debt sustainability. This column shows the stabilisation power of an ESM-ECB intervention, using existing instruments and the just announced ESM Rapid Financing Instrument, showing the case of Italy as an example. Combining ECB support with ESM funds would deliver a more resilient euro area, better placed to engage in a post-virus economic recovery. The announced EIB guarantees and the SURE unemployment re-insurance will also help countries. However, these measures are not a supplement, but a complement, to the already feasible ESM financing discussed.

Vaitilingam, 06 April 2020

As the European economy experiences a severe economic contraction as a result of the coronavirus lockdowns, the IGM Forum at Chicago Booth invited its panel of leading European economists to express their views on Europe’s economic policy response to the COVID-19 crisis: on whether the economic benefits from lockdowns are likely to outweigh the costs over the medium term; and on the desirability of a euro area fiscal policy response to supplement national measures, including the possibility of issuing new pooled debt instruments – ‘Coronabonds’ – to fund government spending. This column reports three quarters of the experts agreeing that severe lockdowns are likely to be better for the economy in the medium term than less aggressive measures; over 90% calling for pan-European fiscal policy measures; but more divided opinions on the need for Coronabonds.

Tekin-Koru, 06 April 2020

Turkey is a late-comer to the global scene of the COVID-19 crisis, yet it has exhibited an alarming rate of spread in the first weeks of its exposure to the virus. This column offers a discussion of the heterogenous risks associated with the precarious lives of the millions of Syrian refugees in the country. These risks harbour the danger of vicious pandemic cycles with ripple effects. Turning a blind eye to the condition of the Syrian refugees in the COVID-19 crisis is not an option either for Turkey or the international community. 

Vandenbroucke, Andor, Beetsma, Burgoon, Fischer, Kuhn, Luigjes, Nicoli, 06 April 2020

The European Commission proposes a pan-European support for short-time work arrangements (SURE). This column discusses the relationship between this proposal and the idea of a European unemployment re-insurance scheme, to which the Commission also refers in its Communication on SURE. It sketches the merits of SURE and signals some caveats.  

Bonardi, Brülhart, Danthine, Jondeau, Rohner, 06 April 2020

Due to COVID-19, large parts of the world economy are being put on hold by government fiat. We argue that – on efficiency as well as equity grounds – the state should generously support not only labour but also capital costs, the latter through ex ante partially reimbursable, rapidly disbursed ‘corona loans’. The exact criteria for reimbursement can be determined ex post – depending primarily on the sector-level severity of lockdown-induced income shortfalls. 

Bell, Bloom, Blundell, Pistaferri, 06 April 2020

The COVID-19 pandemic is turning into a global recession – probably the biggest drop in economic activity since the Great Depression of the 1930s. This column uses over 3 million earnings observations drawn from more than 400,000 UK workers between 1975 and 2016 to identify groups of workers who are most exposed to aggregate risk. This findings suggest that young male workers at small firms could see earnings losses of 8% to 9%, with older women at large firms seeing little or no change in their earnings.

Kapoor, Buiter, 06 April 2020

COVID-19’s economic impact on crumbling GDPs, collapsing tax revenues and ballooning fiscal deficits will be much larger than what has been reported thus far. Any hesitation in throwing everything but the kitchen sink at the health, employment, state aid and financial rescue interventions that are needed will literally kill citizens and destroy the economy. To combat COVID-19, central banks, including the ECB, must cross the Rubicon of monetary financing and immediately transfer the 20%-30% of GDP this will cost into fiscal coffers.

Gros, 05 April 2020

The countries hit hardest by the COVID-19 crisis already have too much debt. Lending from the European Stability Mechanism or via Coronabonds would add to that debt, potentially making it unsustainable. This column suggests that European solidarity should take the form of transfers, not credit. A substantial transfer could be organised via the EU budget simply by exempting the weakest countries from their contributions to the EU budget for the duration of the programming period 2012-2027.

Codogno, van den Noord, 05 April 2020

The emergency measures in place to absorb the COVID-19 shock need to be supplemented by OMT unless leaders agree to create a euro area safe asset and fiscal capacity. This column employs an empirically calibrated model to show that OMT is second-best to the creation of a safe asset and fiscal capacity at the centre, but would still be a powerful means to mitigate the economic impact of the crisis. 

Grund, Guttenberg, Odendahl, 05 April 2020

To ensure that all EU countries can do what is necessary to fight the economic fallout of the pandemic, the fiscal costs of this crisis must be shared. This column proposes that the EU give member states €440 billion in grants to support health care, liquidity to the private sector, short-time work schemes and stimulus packages. The EU should raise the funds in bond markets backed by guarantees. It also shows how this is could work under EU law.

Becker, Mergele, Woessmann, 05 April 2020

The year 2020 marks the 30th anniversary of the reunification of West and East Germany. German separation in 1949 into the Federal Republic of Germany and the German Democratic Republic and its reunification in 1990 offer a unique setting of a rather unexpected introduction and termination of a communist regime in one part of a previously and afterwards unified country. However, this column argues that this period of German history is not a completely straightforward ‘experiment’ from which to learn about the effects of communism.

Bénassy-Quéré, Corsetti, Fatás, Felbermayr, Fratzscher, Fuest, Giavazzi, Marimon, Martin, Pisani-Ferry, Reichlin, Rey, Schularick, Südekum, Teles, Véron, Weder di Mauro, 05 April 2020

There are now several proposals for complementing the vigorous decision of the ECB to launch a mega ‘pandemic emergency purchase programme’ with fiscal and financial initiatives at the European level. These proposals sometimes overlap, which is a good sign of convergence. This column argues that they are also largely complementary to one another. Hence, it calls for a multi-instrument approach that would jointly achieve three objectives: sharing the cost of the COVID crisis, helping member states to borrow at very long maturities and low interest rates, and relaunching the EU after the crisis. In addition to existing tools, the authors believe that a tryptych built around a COVID fund (with borrowing capacity), specific credit guarantees with the European Investment Bank and dedicated credit lines such as an ESM COVID line or the recently proposed temporary Support to mitigate Unemployment Risks in an Emergency (SURE) would be appropriate, provided it is sized up and allows for very long-run borrowing.

Miles, Scott, 04 April 2020

Might inflation rise as a result of policies undertaken during the current crisis and as demand comes back more strongly than supply when it ends? This column argues that it is possible, but far from clear. Indeed, there are reasons to doubt whether any rise in inflation will come. Looking back at past crises – and in particular wars – reveals some similarities but more differences with the current pandemic. There was more reason to see UK inflation rise after the three major wars of the past 220 years; and even then, the evidence that it did is not conclusive. 

Stock, 04 April 2020

Decisions about whether to clamp down or ease up on social distancing hinge on how deadly and widespread is the novel coronavirus. But as this column discusses, neither is known because tests for the virus have focused on those showing severe symptoms and at high risk. If the virus is still not widespread, then it is deadly and there is still time to implement measures – more severe than those currently in place in the US – to suppress it until a vaccine or treatment becomes available. If the virus is widespread, then the true death rate is low and cautiously opening up the economy becomes an option. Data from random testing of the population, which are still unavailable, are critical to informing this choice.

Pröbstl, 04 April 2020

The massive fiscal packages being deployed in Europe raise issues of financing. Economists have proposed three main models. This column offers a pragmatic legal perspective on the options, focusing on their compatibility with EU Law, the ESM Treaty, and German Constitutional Law. It argues that, from a practical legal standpoint, the use of the ESM is preferable to issuing Coronabonds, because it offers more legal certainty and could be implemented more quickly. However, jointly issuing Coronabonds would send the stronger political signal.

Watanabe, 04 April 2020

It has only been a month since the coronavirus shock emerged in Japan and its full nature is still unclear. This column compares the responses of consumption and prices to the COVID-19 shock and another large-scale natural disaster that hit Japan, the Tohoku earthquake in March 2011. The responses of supermarket sales and prices at a daily frequency during the two crises are quite similar. However, evidence suggests that whereas people expected higher inflation for goods and services in the wake of the earthquake, they expect lower inflation in response to the coronavirus shock, suggesting that the economic deterioration due to COVID-19 should be viewed as driven mainly by an adverse aggregate demand shock to face-to-face service industries such as hotels and leisure, transportation, and retail, rather than as driven by an aggregate supply shock.  

Ugolini, 04 April 2020

The bold reactions by central banks to the COVID-19 crisis have been called ‘unprecedented’. But the global economy has experienced real shocks before, with monetary authorities implementing similarly assertive policies. This column reviews three relevant historical precedents. In each case, intervention targeted the private rather than public sector, and succeeded in preventing an economic collapse. The larger difficulty lay in finding the right ‘exit strategy’ once the shock had passed.

Bullard, 04 April 2020

The actions and policies taken to control the spread of COVID-19 in the US have had the effect of engineering a controlled, partial and temporary shutdown of certain sectors of the economy. This column argues that this organised ‘throttling down’ radically changes the way we need to think about and gauge the health of the US economy in the near term. The goals of macroeconomic policy will need to be very different, in some ways the opposite of what we would normally try to accomplish.

Corsetti, Marin, 03 April 2020

In crises, the dollar tends to appreciate – especially against emerging market currencies – and dollar liquidity becomes scarce. This column shows that today’s events are following the historical pattern. Forex market turmoil is preceded by an inversion of the US yield curve as investors, anticipating tough times ahead, require relatively high short-term yields and an appreciation of relatively risky currencies until the disaster occurs. Then, the dollar appreciates sharply. Then, emerging markets suffer massive capital flight. What’s new about the COVID-19 crisis is its scale and speed.

Chan, Marsh, 03 April 2020

The lockdowns in place around the world will result in substantial economic collateral damage. This column looks at stock market reactions prior to and after six prominent historical crises. Equity market prices like the Dow Index are negatively impacted by increases in uncertainty. The business ramifications of regulatory policies, subsidies and so on put in place to contain the spread of COVID-19 posing the greatest uncertainty in the current crisis.

Forslid, 03 April 2020

The transport sector is a significant greenhouse-gas emitter. Because international trade in goods requires transportation, it is regarded with some suspicion by the environmentally concerned. However, trade and transportation may actually decrease emissions if production is ‘dirtier’ than transportation. This column uses a new ‘dirtiness index’ to capture how environmentally harmful a firm is and demonstrates how transportation can reduce global emissions if the production of transport services is cleaner than the production it substitutes. The cleaner transportation is relative to other production sectors, the higher the likelihood that transportation could lower emissions.

Boot, Carletti, Kotz, Krahnen, Pelizzon, Subrahmanyam, 03 April 2020

COVID-19 is a disaster for many firms – especially small and medium-sized ones. This column proposes a scheme that could bring funding to firms quickly without increasing their leverage or default risk. The plan combines outright cash transfers with a temporary, elevated corporate profit tax at the firm level as a form of conditional payback. The implied equity-like payment structure has positive risk-sharing features for firms, without impinging on ownership structures. The proposal should be implemented at the European level to strengthen euro area resilience. 

Gollier, Straub, 03 April 2020

During the lockdowns in place in many countries, certain essential activities must be maintained. This column, the second in a three-part series, asks how we can determine a policy of exemptions to containment beyond these obvious activities, as well as how we might eventually exit containment. It argues that the cost of going to work – i.e. the risk of contracting the disease and becoming a vector of transmission – has to be compared to the societal benefit of the activity generated, and that the calculation often differs depending on whether one adopts an individual or a collective point of view. 

Landais, Saez, Zucman, 03 April 2020

European governments have reacted swiftly to the COVID crisis and are now discussing ways to mutualise the cost of the epidemic. This column proposes the creation of a progressive, time-limited, European-wide progressive wealth tax assessed on the net worth of the top 1% richest individuals. If fighting COVID-19 requires issuing 10 points of EU GDP in Eurobonds (or a rescue fund worth 10 points of EU GDP), a progressive wealth tax would be enough to repay all this extra debt after ten years.

Spinelli, Rouzet, Zhang, 03 April 2020

Multinational firms face complex decisions regarding where and how to set up their activity. Their location choices also take into account complementarities between activities and between markets. This column uses micro-data on Japanese foreign affiliates to shed light on what drives these complex location strategies for Japanese multinationals, and argues that policies to foster FDI attractiveness, especially to be chosen as the location of export platforms, need to take into account these complementarities. 

Wyplosz, 03 April 2020

Faster than anyone expected and in ways few anticipated, the world is changing. Economics is changing with it. CEPR is today launching a novel vehicle for getting COVID-relevant, vetted research into the hands of researchers and, eventually, decision makers as quickly as possible. “Covid Economics: Vetted and Real-Time Papers” provides 48-hour turnaround on peer reviewing. This is not a journal but rather should be thought of as a CEPR-linked discussion paper series that is not limited to CEPR researchers. As with the medical site MedRxiv, "Covid Economics" is for papers that will eventually be published in traditional journals but whose findings are of immediate relevance to the world’s fight against COVID-19.

Baldwin, 03 April 2020

While governments and international organisations have been planning for a global pandemic for years, planning for the attendant economic shock has been much less studied. This ‘Vox Debate ’ gathers research-based policy analysis and commentary on the economics of COVID-19 from leading economists. The topics will cover all the usual international mechanisms of contagion (trade, capital flows, financial institutions, expectations, etc) as well as the domestic impact such as the size, persistence, and sectoral composition of the economic implements. The topics, however, can range further to include the impact on political economy, populism, income and gender inequality, the environmental impact, precarity of work (gig economy), and more.

Costa-i-Font, 02 April 2020

The response to the COVID-19 pandemic has varied widely across the EU, member states following their own self-interests and limited coordination. This column argues that an independent public health agency could help overcome problems of collective action. 

Baranov, De Haas, Grosjean, 02 April 2020

Men are consistently less healthy than women and three times more likely to commit suicide. This column argues that to understand these trends requires understanding ‘masculinity norms’ – the standards that guide and constrain men’s behaviour over time. It uses data from a unique natural experiment: the convict colonisation of Australia, when highly skewed sex ratios (men far outnumbered women) intensified competition and violence. When these behaviours become entrenched in local cultures, the column argues, they continue to manifest themselves long after the country’s gender ratios have stabilised. 

Gollier, Straub, 02 April 2020

Economists have long argued that there is a conflict between the need to make individuals and companies accountable on the one hand, and the need to share risks effectively on the other. This column, the first in a three-part series, argues that in the context of COVID-19, the reluctance to share risk based on ‘moral hazard’ has no reason to exist, and discusses how the socialisation of losses could be implemented.

Bolhuis, Cramer, 02 April 2020

The effects of the COVID-19 pandemic on public health will have major repercussions for the global economy, impacting trends in many different sectors. This column uses detailed neighbourhood-level data to evaluate the impact of demographic changes on different segments of the US housing market. As larger homes (and those in neighbourhoods with relatively more baby boomers) lag behind the broader market in terms of price growth, they also appear increasingly difficult to sell. In the wake of COVID-19, a large share of the US population is at risk of taking a substantial hit to their asset portfolio, just as they retire.

Abad, Suarez, 02 April 2020

Incurred loss provisioning is due to be replaced by expected loss provisioning in many countries around the world, because it was perceived to increase procyclicality. This column quantifies, under alternative provisioning standards, the impact of the arrival of an average recession on a bank portfolio of European corporate loans. It argues that expected loss provisioning may in fact worsen procyclicality, and policymakers should, therefore, delay and freeze the transitional arrangements currently in place for the duration of the COVID-19 crisis.

Lustig, Birdsall, 02 April 2020

The pandemic has created a new, brutal inequality: between those who have a steady source of income and those who do not. This column provides some examples of how the plight of the latter is inspiring a new kind of informal, people-to-people social protection. While this is not a substitute for a publicly financed social safety, it can fill critical gaps and foster the solidarity and trust that is key to citizens’ support for more comprehensive social protection during the next crisis.

Burgess, Sievertsen, 01 April 2020

The global lockdown of education institutions is going to cause major (and likely unequal) interruption in students’ learning; disruptions in internal assessments; and the cancellation of public assessments for qualifications or their replacement by an inferior alternative. This column discusses what can be done to mitigate these negative impacts.

Levy, Mayer, Raviv, 01 April 2020

Economists and finance scholars faced harsh criticism for failing to anticipate the 2008 financial crisis. This column presents evidence from textual analyses of 14,270 working papers published between 1999–2016 that is consistent with this criticism. However, as soon as the crisis unravelled, economists appeared to dramatically increase their efforts in studying and understanding the crisis, its causes and its consequences.

Giupponi, Landais, 01 April 2020

Short-time work is a subsidy for temporary reductions in the number of hours worked in firms affected by temporary shocks. Evidence suggests that it can have large positive effects on employment and can be more effective than unemployment insurance or universal transfers. This column discusses how the COVID-19 crisis – with its mandated reduction in hours of work and massive liquidity crunch for firms – is a textbook case for the use of short-time work. Taking into account available evidence and the current situation, it proposes guidelines to effectively implement short-term work.

Arezki, Nguyen, 01 April 2020

Countries in the Middle East and North Africa face a dual shock from the COVID-19 pandemic and a collapse in oil prices. This column explores the policy options available to deal with such shocks, arguing that authorities should sequence and tailor their responses. MENA countries should first focus on responding to the health emergency and economic depression, postponing fiscal consolidation linked to the persistent drop in oil prices until the recovery from the pandemic is well underway. 

Stabile, Apouey, Solal, 01 April 2020

While some countries have provided assistance to workers unable to perform tasks from home during the COVID-19 pandemic, certain categories of workers tend to fall through the cracks of these programmes. This column reports the findings of a survey of precarious workers in France, including gig economy workers such food delivery bikers. Traditional gig economy workers with incomes under €1,000 a month were more likely to keep working despite the highly elevated health risk of doing so, suggesting that the support in place is leaving some low-income workers exposed.

Baldwin, Freeman, 01 April 2020

COVID-19 containment policies first shuttered factories in China. Since manufacturers around the world rely on Chinese inputs, Chinese industrial disruption hit other nations via ‘supply-chain contagion’. As China's economy gears back up, fhe fast spread of cases in the two other manufacturing giants, Germany and America, are likely to create reverse supply-chain contagion – the industrial equivalent of reinfection. International coordination may reduce the chances that multiple waves of supply-chain contagion hobble global manufacturing.


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