,

US economists on the economic impact of the crisis and policy developments in the US and Europe.

with:
* Adam S. Posen, The Peterson Institute for International Economics
* Vivien A. Schmidt, Boston University
* Jeffry Frieden, Harvard University
* Michael Landesmann, Vienna Institute for International Economic Studies (wiiw)

The following questions will be addressed:
* How does the unfolding Covid-19 crisis compare so far between the US and Europe?
* How does the EMU/EU governance structure constrain monetary and fiscal responses compared to the US?
* Which failures in policy can be/could have been avoided?
* Which social and political outcomes do you expect on both sides of the Atlantic?
* How will the US and European responses affect global economic and political relations?

Giancarlo Corsetti, Aitor Erce, Antonio Garcia Pascual, 14 May 2020

Prominent voices propose financing the European Recovery Fund using joint perpetual debt. This column argues that there are gains from using European borrowing and lending as two separate policy levers. In a world of ultra-accommodative monetary policy, financing the Fund issuing debt at shorter maturities and passing those low interest rates onto member states through loans with low margin and with very long maturities is financially cheaper. Supporting the recovery through this maturity transformation would reinforce debt sustainability across the EU.

Sophia Chen, Deniz Igan, Nicola Pierri, Andrea Presbitero, 11 May 2020

The COVID-19 pandemic and the associated lockdowns have led to unprecedented economic costs around the world. Using high-frequency indicators, this column shows that while COVID-19 is a global shock, European countries and US states with larger outbreaks have suffered significantly larger economic losses. The impact of COVID-19 is mostly captured by changes in people’s observed mobility whereas, so far, there is no robust evidence supporting additional impact from the adoption of non-pharmaceutical interventions, especially in the US. The results indicate a crucial role for communication and trust-building.

Sergio Torrejón Pérez, Marta Fana, Ignacio González-Vázquez, Enrique Fernández-Macías, 09 May 2020

The COVID-19 economic crisis is having a huge impact on employment in the EU, calling for swift policy action targeting the most affected sectors and countries. This column makes an assessment of the labour market impact of the confinement measures put in place by EU governments. It finds that these restrictions are likely to have a very asymmetric effect across EU labour markets, with the most negative employment impact concentrating in the most vulnerable countries and categories of workers.

Francesco Fasani, 05 May 2020

‘Key workers’ are performing these crucial tasks on the front line of Europe's COVID-19 response. This column describes how migrant workers are playing a critical role in performing basic functions in EU societies hit by the COVID-19 epidemic. In addition, low-educated migrants, not just high-skilled ones, are employed in occupations that are key for their host societies, which suggests the need to reconsider, once the crisis has passed, a migration policy debate which is currently almost entirely focused on the importance of attracting high-skilled migrants to the EU.

Almut Balleer, Britta Gehrke, Brigitte Hochmuth, Christian Merkl, 01 May 2020

In response to the COVID-19 crisis, the EU has implemented the SURE programme which provides loans up to €100 billion to member states for the support of short-time work systems. In order to obtain the maximum unemployment stabilisation with these funds, this column argues that the SURE loans should be used to support rule-based short-time work systems that require workers’ consent and that are aligned with national short-term unemployment benefit systems. During the COVID-19 crisis, additions to these rules may be appropriate.

Stephen P. Ferris, Jan Hanousek, Jiri Tresl, 30 April 2020

Corporation corruption is an issue that remains at the forefront of regulatory policy. This column examines the persistence of corruption among a sample of privately held firms from 12 Central and Eastern European countries. Creating a proxy for corporate corruption based on a firm’s internal inefficiency, it is suggested that corruption can enhance a firm’s overall profitability. A channel analysis reveals that inflating staff costs is the most common approach by which firms divert funds to finance corruption. Corruption may persist simply because of its ability to improve a firm’s return on assets.

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.

Agnès Bénassy-Quéré, Ramon Marimon, Philippe Martin, Jean Pisani-Ferry, Lucrezia Reichlin, Dirk Schoenmaker, Beatrice Weder di Mauro, 20 April 2020

The EU has been slow to formulate its response to the Covid crisis. Fortunately, things have started to change. The EU’s leaders should finish work on the new borrowing facilities, first by clarifying the maturities of the borrowings, and second by being prepared to beef up their amounts if needed. It is also crucial to find ways to jointly finance priority action and to provide support to countries worst affected by the crisis in order to restart their own economies. The objective of a Recovery Initiative should be to repair and reconstruct the EU economy: to repair corporate balance sheets and value chains; and to reconstruct the economy on a new, sustainable basis through investment in common public goods such as research, resilience, and the greening of the economy. This will involve targeted investment, coordinated restructuring in some sectors, and the introduction of an equity fund to help SMEs survive the crisis. 

Stephanie Ettmeier, Chi Hyun Kim, Alexander Kriwoluzky, 09 April 2020

The ongoing COVID-19 pandemic in Europe is severe and spreads economic uncertainty. This column explores the evolution of financial market participants’ expectations during the COVID-19 pandemic, estimating yield curves of bonds in France, Germany, Italy, and Spain. The authors carry out an event study to investigate the potential impact of European fiscal and monetary policy measures on these yields. The results suggest that policy measures must be large and coordinated on the European level, and that fiscal and monetary policy must act jointly to fight the pandemic’s negative economic consequences

Daniel Gros, 05 April 2020

The countries hit hardest by the COVID-19 crisis already have too much debt. Lending from the European Stability Mechanism or via Coronabonds would add to that debt, potentially making it unsustainable. This column suggests that European solidarity should take the form of transfers, not credit. A substantial transfer could be organised via the EU budget simply by exempting the weakest countries from their contributions to the EU budget for the duration of the programming period 2012-2027.

Joan Costa-Font, 02 April 2020

The response to the COVID-19 pandemic has varied widely across the EU, member states following their own self-interests and limited coordination. This column argues that an independent public health agency could help overcome problems of collective action. 

Giulia Giupponi, Camille Landais, 01 April 2020

Short-time work is a subsidy for temporary reductions in the number of hours worked in firms affected by temporary shocks. Evidence suggests that it can have large positive effects on employment and can be more effective than unemployment insurance or universal transfers. This column discusses how the COVID-19 crisis – with its mandated reduction in hours of work and massive liquidity crunch for firms – is a textbook case for the use of short-time work. Taking into account available evidence and the current situation, it proposes guidelines to effectively implement short-term work.

Martin Hodula, 16 March 2020

The shadow banking system has become an important source of funding worldwide for the real economy over the last two decades. Europe is no exception, though research on shadow banking there has been relative scarce. This column shows that European shadow banking is highly procyclical, intertwined with insurance corporations and pension funds, and a terminal station for regulatory arbitrage. It also discusses the existence of two main motives that explain the growth of shadow banking, both prior and post-Global Crisis: a funding-cost motive and a search-for-yield motive. 

Johannes Bollen, 13 March 2020

While the energy transition to decarbonise the EU’s economy fully by 2050 will be felt economically in all member states, the costs of decarbonising can be substantially lowered through maximising the production of hydrogen, which in turn can be used to generate electricity. This column uses a global climate-energy economic model to compare three energy production scenarios. It finds that wind energy plus gasification of biomass, natural gas, or coal with carbon capture storage can reduce the cost of achieving Europe’s 95% emissions-reduction goal by 40%. 

Agnès Bénassy-Quéré, Ramon Marimon, Jean Pisani-Ferry, Lucrezia Reichlin, Dirk Schoenmaker, Beatrice Weder di Mauro, 11 March 2020

The unfolding coronavirus epidemic represents a severe economic stress test for Europe as well as a test of European unity. This column discusses how the crisis might unfold and the appropriate policy response. It advocates a comprehensive emergency package through which the EU would take responsibility for a meaningful share of the overall emergency effort.

Kai Gehring, Stephan A. Schneider, 18 February 2020

Secessionist parties draw upon rhetoric on cultural identity and political autonomy to garner votes. However, the parties’ electoral success is also influenced by the availability of regional resources. This column examines two secessionist parties in the UK – the Scottish National Party and the Welsh Plaid Cymru – and the divergence in their performance following the discovery of oil within Scotland’s hypothetical maritime borders. It finds that a 10% increase in relative regional wealth is associated with an increase of 3 percentage points in the vote share of secessionist parties. Relative regional resource wealth is more important than absolute wealth, and changes in regional resource wealth only play a role when there is baseline support for secession.

Kym Anderson, 16 February 2020

Global alcoholic beverage markets have changed dramatically in recent years due to globalisation, income growth in emerging economies, changes in individual preferences, policy initiatives to curb socially harmful drinking, and, in particular, the dual trade policy shocks of Brexit and the US’s unilaterally imposed discriminatory tariffs. This column provides an overview of the major trends and projects the possible effects of Brexit and the US tariffs on the global alcohol market. It concludes that both shocks would reduce world trade in wine. Even countries not targeted by US tariffs can be worse off if those tariffs sufficiently reduce global consumption. 

Susan Ariel Aaronson, 05 February 2020

Individuals, citizens and firms have become increasingly dependent on data-driven services such as artificial intelligence and apps, and the same is true of defence and national security officials. This column argues that the US failure to adequately govern how firms use and monetise data affects national security in many ways. It also examines specific examples of the misuse of data and assesses the responses by the US and the EU.

Alessandro Turrini, Stefan Zeugner, 13 December 2019

For net international investment position benchmarks to be effective measures of countries’ external positions, they must be developed beyond a one-size-for-all approach. This column presents two such country-specific benchmarks to identify investment levels that are (1) explained by a country’s demographics and key indicators, and (2) beyond the threshold of presenting significant external stability risk. The authors apply these benchmarks to 65 advanced and emerging economies and present key findings.

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