Dan Andrews, Andrew Charlton, Angus Moore, 22 September 2021

Covid-19 has been characterised as a reallocation shock, but the debate has so far lacked a clear link with productivity. This column uses real-time data to show that job reallocation remained connected to firm productivity even while labour turnover fell in response to the pandemic. High (low) productivity firms were more likely to expand (contract), although the strength of this effect varied across countries, consistent with differences in job retention schemes. While policy partly hindered creative destruction, the nature of the pandemic shock favoured high-productivity and tech-savvy firms, resulting in a reallocation of labour to these firms. 

Kenneth Rogoff, 21 September 2021

The Chinese economy was able to sharply rebound from the Covid pandemic, helping to sustain a housing boom. The country faces a multitude of challenges over the medium term, however, on top of the much more virulent Delta variant. This column argues that the footprint of China’s real estate sector has become so large – with real estate production and property services accounting for 29% of the country’s GDP – that absorbing a significant housing slowdown would significantly impact overall growth, even absent a financial crisis.

Luke Bartholomew, Paul Diggle, 21 September 2021

As the global economy recovers from the immediate economic impact of the Covid crisis, attention is increasingly turning to the long-run impact of the shock on productivity. This column identifies several channels – including labour market hysteresis, impaired skill acquisition, belief scarring, an increase in zombie companies, and policy errors – through which the lasting harm will outweigh any positive supply shocks caused by the pandemic. The authors estimate long-term output losses in the order of 3% of global GDP. Scarring will be greater in some economies than others, pointing to the importance of policy in mediating and offsetting these channels. 

Kathryn Judge, Anil Kashyap, 17 September 2021

In March 2020 we all assumed there would be some reaction to Covid-19 on Wall Street but, when markets did the opposite of what most people expected, the Fed had to step in to stabilise the economy. Anil Kashyap and Kathryn Judge tell Tim Phillips what happened, why, and how to stop it happening again.

Read more about the research behind this: VoxColumn: Reforming the macroprudential regulatory architecture in the US, Kathryn Judge, Anil Kashyap

John Duca, John Muellbauer, Anthony Murphy, 13 September 2021

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.

Hongyong Zhang, 13 September 2021

COVID-19 has had large impacts on global production and international trade. The column uses quarterly aggregate-level data on foreign affiliates of Japanese multinational corporations to show that multinational production and supply chains were negatively affected by the COVID-19 pandemic, especially in the 2nd quarter of 2020. The sales of Japanese manufacturing affiliates almost recovered in the 4th quarter of 2020, indicating the resilience of global production and multinationals’ supply chains. But there are large variations in recovery across countries.

Benoît Cœuré, 08 September 2021

In March 2020, the French parliament tasked an independent committee with monitoring the financial support available to companies during the Covid-19 crisis. A rich firm-level database – matching receipt of government money with balance-sheet records, tracing payroll and turnover trajectories for the first two waves of the pandemic – was the result. This column mines that database to evaluate the incentives for accepting government aid; the impact of support measures; and heterogeneity across industries, firms, and locations. The authors judge French fiscal support during the crisis a tentative success.

Roberta Cardani, Olga Croitorov, Fabio Di Dio, Lorenzo Frattarolo, Massimo Giovannini, Stefan Hohberger, Philipp Pfeiffer, Marco Ratto, Lukas Vogel, 08 September 2021

The COVID-19 recession differs strongly from past crises in recent history. This column summarises the integration of key economic features of the pandemic into the European Commission’s estimated DSGE model. Shock decompositions highlight the dominant role of ‘lockdown shocks’ (‘forced savings’, labour hoarding) for explaining the quarterly pattern of real GDP growth in 2020, complemented by negative contributions from foreign and investment demand notably in 2020q2 and a negative impact of persistently higher (precautionary) savings. The inflation response has been modest given the severity of the recession.

Mehdi Benatiya Andaloussi, 02 September 2021

How many lives could be saved if rich countries shared their vaccines? Less than 2% of people in low-income countries have received even one dose. Mehdi Benatiya Andaloussi tells Tim Phillips about his calculation of how many lives would be saved by the end of 2021 if vaccines were shared more fairly - and how many have been lost because this hasn't happened so far.

Read more about the research discussed and download the free discussion paper:
Benatiya Andaloussi, M and Spilimbergo, A. 2021. 'How many lives could be saved through the early sharing of vaccines globally?' CEPR

Niels-Jakob Hansen, Rui C. Mano, 02 September 2021

The emergence of new Covid-19 variants and a highly uneven vaccine rollout have put mask mandates back on the policy agenda. This column presents new evidence that state-level mask mandates reduced new weekly COVID-19 cases, hospital admissions, and deaths significantly in the US. The results imply that 87,000 lives were saved up until 19 December 2020, while an additional 58,000 lives could have been saved if all states had put in place a mandate starting in April 2020. Mask mandates had a greater effect in counties more positively inclined towards mask wearing.

Laurent Bossavie, Daniel Garrote Sanchez, Mattia Makovec, Çağlar Özden, 01 September 2021

The COVID-19 shock exerted pressure on labour markets around the world. This column explores how the prevalence of immigration in the labour market affected different types of workers’ exposure to virus-related risks in 15 destination countries in Western Europe. It finds that not only were immigrant workers more vulnerable to the economic and health shocks of the pandemic; they also served as a protective shield for native workers. By undertaking higher-risk occupations, immigrants enabled native workers to move into work with fewer face-to-face interactions or jobs that could be carried out from the safety of home. 

Alejandro Fernández-Cerezo, Beatriz González, Mario Izquierdo, Enrique Moral-Benito, 26 August 2021

The Covid-19 pandemic and the imposed social distancing restrictions represented an unprecedented shock for the world economy and caused a marked increase in uncertainty. Based on a new firm-level survey matched with balance-sheet information, this column presents new evidence from Spain on the asymmetric impact of the pandemic shock. The impact of the Covid-19 shock was larger in the case of small and less productive firms within each sector and region. However, the unexpected announcement of the effectiveness of the Pfizer vaccine significantly improved the prospects of faster recovery under different sets of measures.

Nicola Branzoli, Edoardo Rainone, Ilaria Supino, 23 August 2021

The Covid-19 pandemic increased the pace of change in clients’ relationships with the banking sector, with mobility restrictions forcing banks to make better use of information technology to accommodate the increasing demand for digital financial services. This column analyses the role of IT adoption in bank lending since the outbreak of the pandemic. It finds that intermediaries with a higher degree of digital readiness provided more credit to non-financial corporations. It also shows that proximity to a physical bank branch increased the positive impact of IT on the amount of credit granted.

Elena Bobeica, Benny Hartwig, Christiane Nickel, 20 August 2021

The initially muted reaction of euro area inflation to the recent recession suggests that the Phillips curve is flat or may have flattened during the pandemic. This column argues that the assessment of the Phillips curve has become more complicated due to numerous confounding factors. It discusses evidence that underlying inflationary pressures have been dampened by the build-up of slack, and that models accounting for tail events reveal more stable Phillips curve parameters. Despite the many confounding factors, it seems that the Phillips curve is still at play – even if it is hard to pin down precisely.

Tommaso Bighelli, Tibor Lalinsky, Filippo di Mauro, 19 August 2021

Government support in response to the Covid-19 pandemic has raised concerns about the misallocation of public funds and the creation of ‘zombie’ firms. This column uses firm-level data from CompNet for four EU countries to show that Covid-19 support was distributed rather efficiently. Government subsidies were distributed towards medium productive firms, and only marginally towards the undeserving ‘zombies’. However, the negative impact of the pandemic on productivity growth was large and resource reallocation sluggish, which calls for a removal of the blanket as soon as the situation allows. 

Caroline Freund, Aaditya Mattoo, Alen Mulabdic, Michele Ruta, 18 August 2021

The immediate consequences of natural disasters for global value chains are well-documented, but little is known about the longer term. This column examines the long-term impact of the 2011 earthquake in Japan on auto and electronics supply chains using data on imports of Japanese products worldwide. Imports shifted to new suppliers, especially in products where dependence on Japan was greater. The new suppliers tended to be developing and large countries, suggesting cost and scale were important. The observed pattern of switching may be relevant to the COVID-19 pandemic.  

Liviu Voinea, Prakash Loungani, 16 August 2021

Over the past three decades, post-crisis inflation in OECD economies has only picked up once the gap between current wages and peak pre-crisis wages has closed. This column explores the role of the cumulative wage gap in driving inflation, with a particular focus on Covid-19. The authors argue that the increase in inflation in recent months, which appears driven by one-off increases in income and supply bottlenecks, will not be sustained, as long as cumulative wage gaps remain wide.

Chad Bown, 12 August 2021

In the scramble for PPE in early 2020, prices spiked, supplies dried up, and doctors were forced to use garbage bags for protection. A year on, Chad Bown has examined what happened, and he tells Tim Phillips how we can avoid a repeat.

The paper discussed is: Bown, C. 2021. 'How COVID-19 medical supply shortages led to extraordinary trade and industrial policy'. CEPR, Discussion Paper 16359

Nikolay Angelov, Daniel Waldenström, 13 August 2021

The negative economic impact of the Covid-19 pandemic has received much attention, but less is known about its distributional consequences. This column presents new evidence on the pandemic’s inequality effects in Sweden using data on earnings and individual take-up of government Covid-19 support. The results show that income inequality increased during the pandemic, mostly due to layoffs and fewer working hours among low-income, part-time employees. The government’s support policies significantly dampened the increase in inequality but did not reverse it.

Lena Anayi, Jose Maria Barrero, Nicholas Bloom, Philip Bunn, Steven Davis, Julia Leather, Brent Meyer, Myrto Oikonomou, Emil Mihaylov, Paul Mizen, Gregory Thwaites, 13 August 2021

The Covid-19 pandemic hit some firms and sectors especially hard. As economies bounce back, a key question is whether the recovery will re-employ all of the workers shed during the downturn, and whether they will go back to similar jobs. Using data from the Decision Maker Panel survey of UK businesses and the Survey of Business Uncertainty in the US, this column examines the ongoing impact of the Covid shock on cross-firm resource reallocation, summing the pandemic’s effects thus far and firms’ expectations for future reallocation of jobs and sales. The combined backward and forward-looking rate of job reallocation has roughly doubled in both countries, and sales reallocation has risen by even more, particularly in the UK. Businesses expect this accelerated pace of reallocation to persist into 2022, which raises the chance that mismatch unemployment will slow recovery in the medium term. 

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