Agnès Bénassy-Quéré, Beatrice Weder di Mauro, 26 May 2020

After a period of hesitation, governments in Europe have reacted forcefully to the Covid-19 pandemic with various strategies combining social distancing, testing/quarantining, and lockdowns. During a pandemic, however, coordination is key and repairing corporate balance sheet and the single market, as well as economic recovery constitute common goods. This column takes stock of the progress on addressing the crisis on the three axes of European-level support – monetary, banking and fiscal policy. The EU Recovery plan that is taking shape looks promising and could represent a significant sign of European solidarity and unity. 

Barthélémy Bonadio, Zhen Huo, Andrei Levchenko, Nitya Pandalai-Nayar, 25 May 2020

Lockdown disruptions to manufacturing and shipping transmit shocks across countries through global supply chains. This column uses a simulation analysis to quantify these impacts and finds that the transmission of foreign lockdowns accounted for one-third of the total Covid-19-related GDP contractions. However, renationalisation of global supply chains is unlikely to help insulate economies from future pandemic-driven lockdowns. The reason is that eliminating reliance on foreign inputs would increase the reliance on domestic inputs. Since a pandemic-related lockdown would also affect domestic input suppliers, there is generally no resilience benefit from renationalising international supply chains.

Jeffrey Chwieroth, Andrew Walter, 23 May 2020

Although necessary, many of the economic policy responses to the COVID-19 crisis may end up damaging political incumbents in the medium and long term. This column presents evidence suggesting that voters expect great things from their leaders in deep crises. Yet the potential for great disappointment arises from the inevitable perceived inequities that will follow from the coronavirus crisis bailouts. As the pandemic exacerbates existing divisions within societies, the political costs predicted implies that only a minority of the most skilled political leaders are likely to survive this crisis.

Agnès Bénassy-Quéré, Beatrice Weder di Mauro, 22 May 2020

After a period of hesitation, governments in Europe have reacted forcefully to the Covid-19 pandemic with various strategies combining social distancing, testing/quarantining, and lockdowns. During a pandemic, however, coordination is key, and in responding to the current crisis European coordination has proved as painful as ever. A new eBook brings together Vox columns analysing the three axes of European-level support – monetary policy and banking, state aid and fiscal rules, and funding – and identifies the main difficulties that will appear down the road. It concludes that the EU Recovery plan that is taking shape looks promising and could represent a significant sign of European solidarity and unity.

Richard Baldwin, Rebecca Freeman, 22 May 2020

International trade has helped many nations get vital medical supplies during this pandemic, yet a number of new, protectionist initiatives have been taken or discussed which could disrupt global value chains. This column presents calculations showing that national manufacturing sectors all across the globe are highly interdependent, that these connections have risen since the 2008/9 crisis, and that China is pivotal in the network of dependencies. Given this, policies that seek to hinder supply-chain trade could prove costly. 

Stephen Cecchetti, Kim Schoenholtz, 22 May 2020

Despite significant reforms over the last two decades, the euro area remains divided, both politically and financially. This column reviews the progress towards the completion of the European monetary union and highlights the remaining gaps. The euro area remains behind the US in terms of risk sharing, banking and capital markets union, and labour mobility. In addition, there is no common fiscal policy to provide support in response to regional shocks. The COVID-19 crisis is a severe test for the euro area, which should be met with renewed calls for solidarity and integration.

Helsinki Graduate School of Economics Situation Room, 21 May 2020

Effective management of the COVID-19 crisis requires real data in real time, often drawn from multiple sources. This column describes how researchers in Finland have created a remote-access ‘Situation Room’ that allows for real-time analysis of the Finnish economy, both for the government and for the wider public. The results from the study provide useful insights for policymakers in Finland and beyond.

Kevin Daly, Tadas Gedminas, Clemens Grafe, 20 May 2020

Although the COVID-19 crisis is a global phenomenon, emerging market economies are in a weaker position than developed economies to absorb its fiscal costs. This column assesses the impact of the crisis on government deficits and debt levels in emerging markets, and the fiscal adjustments that are likely to be required in the aftermath of the crisis. The findings suggest that median government debt will rise by around ten percentage points of GDP and that most emerging economies will face painful post-crisis adjustments. The results also imply a strikingly wide range of outcomes across emerging economies around the world.

Guillaume Chapelle, 20 May 2020

Non-pharmaceutical interventions such as school closures and social distancing were implemented in the US against the spread of the 1918 influenza pandemic. This column explores the effect of these interventions on economic activity and death rates in US cities during and after 1918. The policies lowered the fatality rate during the peak of the pandemic but are associated with a significant rise in the death rate in subsequent years, possibly through reducing herd immunity. Their impact, positive or negative, on the growth of the manufacturing sector in US cities remains an open question.

Nicholas Bloom, Philip Bunn, Scarlet Chen, Paul Mizen, Gregory Thwaites, Pawel Smietanka, 20 May 2020

The spread of Covid‑19 and the measures to contain it are having a significant impact on many countries around the world. This column presents results from a survey of CFOs conducted in mid-April 2020, which show that businesses in the UK expected the spread of Covid-19 to reduce sales by just over 40%, relative to what would have otherwise happened. Large impacts on employment and investment were also expected. The impacts were expected to be concentrated in low productivity, low wage sectors. Failures in supply chains are likely to be a factor holding back output too. There was a further large increase in uncertainty in April.

Gabriele Ciminelli, Sílvia Garcia-Mandicó, 19 May 2020

As many countries around the world are finally past the first peak of the pandemic, it is time to assess what could be done better in case of a second wave. This column analyses the management of COVID-19 in Italy using newly available death registry data covering almost all Italian municipalities. The findings suggest that the closure of non-essential services reduced mortality, while shutting down factories did not. Additionally, within the area of the epidemic epicentre, mortality was up to 50% higher in municipalities far from an ICU, a sign that congestion of the emergency care system may have prevented critical patients from being treated on time.

Janine Aron, John Muellbauer, 18 May 2020

Excess mortality data avoid miscounting deaths from under-reporting of Covid-19-related deaths and other health conditions left untreated. According to EuroMOMO, which tracks excess mortality for 24 European states, England had the highest peak weekly excess mortality in total, for the over-65s, and, most strikingly, for the 15-64 age group. This column argues that research is needed into such divergent patterns. It suggests that national statistical offices should publish P-scores (excess deaths divided by ‘normal’ deaths) for states and sub-regions, and permit EuroMOMO to publish P-scores as well as their less transparent Z-scores. This would aid comparability, better inform pandemic policy, and allow lessons to be drawn across heterogeneous regions and countries. 

Justin Sandefur, Arvind Subramanian, 18 May 2020

The IMF is forecasting a substantially more muted impact of the COVID crisis on GDP for developing countries compared to advanced economies. This column argues that the discrepancy cannot be explained by external vulnerabilities, which afflict developing countries more. Nor can it be explained by the domestic shock, because social distancing and lockdowns have been similar across both groups, while fiscal policy responses have been significantly weaker in developing countries. Relative optimism should not guide international policy responses.

Inga Heiland, Karen Helene Ulltveit-Moe, 17 May 2020

As almost 80% of trade is carried by sea, it is evident that disruptions to sea transport can damage trade flows and disrupt supply chains. COVID-19 containment policies have hit sea transport severely. Many key ports have imposed restrictions on vessels and crew, including prohibitions that have stopped crew changes. Satellite data for ships show that sailings to destinations with crew-change restrictions are down by almost 20% for container ships compared to previous years. More flexible regulations based on screening and discretion are needed to ensure the continuity of freight distribution in order to secure that supply chains do not get a double hit.

John Cochrane, 16 May 2020

Guglielmo Briscese, Nicola Lacetera, Mario Macis, Mirco Tonin, 16 May 2020

Many governments have enacted stringent ‘stay-at-home’ policies to mitigate the spread of the COVID-19 pandemic. This column reports evidence from a series of surveys of representative samples of the Italian population on their willingness to comply with the lockdown. The results indicate that people are less compliant if self-isolation measures are extended for longer than expected, which suggests that managing expectations is critical. This finding could be valuable if new waves of infections force governments to re-introduce lockdowns.

Tiziana Assenza, Fabrice Collard, Martial Dupaigne, Patrick Feve, Christian Hellwig, Sumudu Kankanamge, Nicolas Werquin, 15 May 2020

How should governments balance controlling the COVID-19 pandemic with limiting its economic costs? This column argues that health policy and economic policy objectives in pandemic control are not that far apart, and that the epidemiological strategies adopted by many countries – aptly described as a ‘hammer and dance’ – are also based on sound economic principles. By paying close attention to behavioural responses and externalities, the authors offer concrete prescriptions for lockdown and recovery policies.

Shigeru Fujita, Giuseppe Moscarini, Fabien Postel-Vinay, 15 May 2020

Current government policies addressing the COVID-19 crisis protect the hardest-hit workers and jobs. The world economy, however, is already experiencing needs for employment reallocation towards certain essential activities. This column proposes a policy framework to resolve the trade-off between protecting valuable match-specific capital and restoring the desired pace of healthy reallocation. The scheme leverages the distinct age profile of COVID-19 health risks, matching capital, and worker reallocation, by tailoring furlough subsidies, wage subsidies, and unemployment insurance to worker age.

Asger Lau Andersen, Emil Toft Hansen, Niels Johannesen, Adam Sheridan, 15 May 2020

The COVID-19 pandemic has had drastic effects on consumer spending across the world. This column presents evidence based on bank account transaction data from Denmark showing that total card spending was reduced by 25% during the early phase of the crisis. The drop was mostly concentrated on goods and services whose supply is directly restricted by government interventions, suggesting a limited role for spillovers to non-restricted sectors through demand in the short term.

Marcus Hagedorn, Kurt Mitman, 15 May 2020

Heterogeneous-Agent New Keynesian models offer new perspectives on fiscal and monetary policy interaction in the euro area. The current question is whether ECB measures are predominantly motivated to ensure price stability (with fiscal consequences a side effect), or whether they are motivated by an overriding economic policy objective. This column presents evidence that, according to the HANK models, there is no distinct separation between fiscal and monetary policy. Fiscal policy is an important determinant of inflation at the zero lower bound, and properly designed asset purchases are an effective instrument to satisfy the price stability mandate.

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