Matthias Schnetzer, Dennis Tamesberger, Simon 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. 

Brian Bell, Nicholas Bloom, Jack Blundell, Luigi 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.

Agnès Bénassy-Quéré, Giancarlo Corsetti, Antonio Fatás, Gabriel Felbermayr, Marcel Fratzscher, Clemens Fuest, Francesco Giavazzi, Ramon Marimon, Philippe Martin, Jean Pisani-Ferry, Lucrezia Reichlin, Hélène Rey, Moritz Schularick, Jens Südekum, Pedro Teles, Nicolas Véron, Beatrice 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.

Jean-Philippe Bonardi, Marius Brülhart, Jean-Pierre Danthine, Eric Jondeau, Dominic 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. 

Ayça 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. 

Romesh 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.

Aitor Erce, Antonio Garcia Pascual, Ramon 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.

Sebastian Grund, Lucas Guttenberg, Christian 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.

Lorenzo Codogno, Paul 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. 

James 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.

Christian Gollier, Stephane 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.

Tsutomu 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.  

Charles 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.

Julian 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.

James 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.

David Miles, Andrew 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. 

Camille Landais, Emmanuel Saez, Gabriel 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.

Christian Gollier, Stephane 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. 

Arnoud Boot, Elena Carletti, Hans‐Helmut Kotz, Jan Pieter Krahnen, Loriana Pelizzon, Marti 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. 

Kam Chan, Terry 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.

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