The collapse of global trade during the COVID-19 crisis was stunning in its magnitude, but was milder in relative terms than during the Global Crisis. Based on data from 40 different countries, this column suggests that the key lies in the composition of demand. The contributions of consumption and services sector demand to the import contraction were notably larger during the COVID-19 crisis. This may have led to a relatively milder import contraction, as consumption and services production are less import-intensive than investment and manufacturing production.
Global crisis
When we live through a financial crisis, many of us think differently about money afterwards. Neuroscientists can show that the experience changes the physical structure of our brains, and Ulrike Malmendier tells Tim Phillips how this should also change the way that economists think about preferences for risk.
Read more about the research presented and download the free Discussion Paper
Malmendier, U. 2021. 'Experience Effects in Finance: Foundations, Applications, and Future Directions'.
Following the global financial crisis, subnational governments engaged in pro-cyclical fiscal policy by reducing investment, drawing out the recovery. This column presents evidence suggesting that the Covid crisis has impacted the fiscal positions of subnational governments in the OECD far less than the previous crisis, which should mitigate this tendency towards pro-cyclicality. This is partly the result of central governments having provided substantial fiscal support, while at the same time subnational governments have relied heavily on relatively stable revenues from recurrent taxes on immovable property which, unlike in the previous crisis, are not expected to decline due to a housing market crash.
Research on house price cycles and their interactions with the economy has burgeoned since the Global Financial Crisis. This column draws five lessons from a recent comprehensive survey. It argues that conventional theories of house price dynamics are misleading. Shifts in credit conditions, together with differences in housing supply response across cities, regions and countries, account for much of the heterogeneity of house price outcomes. Finally, increased demand for space and unprecedented policy interventions together explain the very different house price experience in the pandemic compared with the Global Financial Crisis.
When Queen Elizabeth II asked economists why none of them had seen the Great Recession coming, they presented her with a number of reasons but forgot to mention the main one: they hadn’t paid attention to ‘red lights’ that had been flashing in the qualitative survey data from consumers and producers that predicted the downturn. Chief among these was the fear of unemployment which, as this column shows, predicts upticks in unemployment 12 months ahead.
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