Ilan Noy, Nguyen Doan, Benno Ferrarini, Donghyun Park, 01 May 2020

The economic risk of an epidemic is distinct from its health risk. In the case of COVID-19, financial and institutional capacity are key determinants of an economy’s resilience to the shock. This column assesses the economic risks associated with the coronavirus pandemic across the world. The evidence shows that economic risks are especially high in Africa, Iran, South and Southeast Asia. Although healthcare systems are better equipped to handle the crisis than in previous pandemics, the globalisation of trade and labour flows will likely amplify the risks to the global economy.

Bary Pradelski, Miquel Oliu-Barton, 09 February 2021

EU member states agreed to adopt a joint strategy to exit Covid-19, based on setting public health measures and travel restrictions dependent on a region’s epidemiological situation. The strategy follows three of the four key principles of green zoning as introduced in the original version of this column, published in April and circulated to European decision makers: (1) divide each country into smaller zones; (2) label zones green if the virus is under control, and red otherwise; (3) adopt colour-dependent public health measures. However, the strategy falls short on the last and critical principle: (4) allow free travel between green zones, but control other travel. This update argues that the unconditional protection of green zones through travel restrictions must become the EU’s focus to curb the spread of the virus, avoid the repeated lockdowns experienced over the past year, and minimise economic and social damage.

ChaeWon Baek, Peter B. McCrory, Todd Messer, Preston 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.

Massimo Motta, Martin 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.

Alice Mesnard, Paul Seabright, 01 May 2020

Lockdowns imply the costly confinement of many healthy individuals for each infected person. Digital apps on smartphones can reduce this cost, but discussion has focused on contact-tracing apps. In addition to familiar security concerns, these can be exploited maliciously in order to disrupt activity or impose quarantine on rivals. This column proposes instead ‘Activity Apps’, which have modest data requirements and less disruptive potential, but can match individuals to activities in ways that may substantially reduce the costs of controlling Covid-19.

Christopher 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.

Richard Baldwin, Simon 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.

Timo 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.

Miklós Koren, Rita 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.

Mike Harmon, Victoria 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.

Giancarlo Corsetti, Aitor 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.

Áron Gereben, Marcin 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.

Uri Alon, Eran 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.

Teresa Barbieri, Gaetano Basso, Sergio 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.

Vasco Carvalho, Juan Ramón García, Stephen Hansen, Alvaro Ortiz, Tomasa Rodrigo, José V. Rodríguez Mora, Pep 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.

Andrew Scott, Jonathan 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.  

Jonathan Heathcote, Andrew Glover, Dirk Krueger, Víctor 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.

Mehdi 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. 

Petr Sedláček, Vincent 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.

Andreas Joseph, Christiane Kneer, Neeltje van Horen, Jumana 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.

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