Global crisis

Ulrike Malmendier, Leslie Sheng Shen, 15 March 2021

Economic crises have prolonged consequences on consumer behaviour, beyond effects captured by standard economic variables. Standard life-cycle consumption channels often fail to explain these lasting effects. This column argues that economic downturns ‘scar’ consumers in the long run. Consumers who have lived through times of high unemployment remain pessimistic about the future financial situation, spend less in future years, and accumulate more savings, controlling for income, wealth, and employment. These results suggest a novel micro-foundation of fluctuations in aggregate demand and imply long-run effects of macroeconomic shocks. 

Francis Diebold, 22 January 2021

Measuring real economic activity in real time is crucial for the design and implementation of macroeconomic policies. This column documents the path of the Aruoba-Diebold-Scotti index, which provides a real-time assessment of US business conditions before official data like GDP are officially released, during the pandemic recession entry and relates it to the progress of COVID-19. The index proves a good indicator of the path of real time activity and a strong negative correlation to the rate of new COVID cases.

Sümeyra Atmaca, Karolin Kirschenmann, Steven Ongena, Koen Schoors, 16 January 2021

Deposit insurance has the potential to preserve and even restore financial stability in times of crises. This column uses evidence from more than 300,000 Belgian depositors of a large European bank during 2008 and 2009 to examine whether increasing deposit insurance coverage supported financial stability during the global financial crisis. It finds that the increase in deposit insurance coverage together with the nationalisation of a bank at the height of the financial crisis in the autumn of 2008 was effective in calming depositors. The effect of increased deposit insurance kicks in most strongly once the bank is reprivatised, and close bank-customer relationships and trust in the government reinforce the effect.

Gilbert Cette, Jimmy Lopez, Jacques Mairesse, Giuseppe Nicoletti, 02 December 2020

The COVID-19 crisis has highlighted the importance of the swift reorganisation of tasks and logistics in cushioning economic shocks. While it is too early to study the effects of managerial talent on resilience to the COVID-19 crisis, useful insights can be drawn from the experience of the Great Recession. This column shows that countries with a higher quality of management before the Great Recession have been more able to limit employment losses. This was achieved through the ability to moderate real wage growth.

Francesco Furlanetto, Ørjan Robstad, Pål Ulvedal, Antoine Lepetit, 09 November 2020

Modern macroeconomic models imply that demand factors have only a small transitory effect, if any, on the productive capacity of the economy. By extending the econometric framework proposed by Blanchard and Quah, this column enables fluctuations in aggregate demand to have a long-run impact on the productive capacity through hysteresis effects. It finds that these demand shocks are quantitatively important in the US, in particular if the Great Recession is included in the sample. More specifically, demand-driven recessions lead to a persistent decline in employment and investment but leave labour productivity largely unaffected.

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