Reint Gropp, Steven Ongena, Jörg Rocholl, Vahid Saadi, 07 August 2020

Recessions are periods of low opportunity costs for time and resources, and hence can facilitate a productivity-enhancing reallocation of resources and improve productivity growth. However, recessions can also slow productivity growth by intensifying credit frictions, for instance, through the accumulation of legacy assets in the banking sector. This column investigates the interaction between these two channels in the recent banking crisis and shows that US regions with more restructuring of inefficient banks during the post-Global Crisis recession experienced higher productivity growth in the real sector in subsequent years.

Marcin Wolski, Patricia Wruuck, 05 August 2020

The COVID-19 crisis has had a substantial impact on labour markets throughout Europe. This column uses new data sources based on Google Trends reports in order to investigate the speed of transmission of the crisis into individuals’ concerns about becoming unemployed. The results indicate that this transmission is linked to corporate resilience. A stronger financial position of firms to withstand liquidity shortfalls may have helped to cushion the deterioration in job market sentiment during the outbreak of the pandemic, suggesting the importance of bolstering liquidity as a way of sheltering jobs. 

Marco Le Moglie, Giuseppe Sorrenti, 01 August 2020

Criminal organisations invest vast sums of money within the legal economies of many countries worldwide. These investments provide criminal organisations with a powerful tool to raise forms of social consensus in some portions of the population. This column provides a characterisation of organised crime’s investment in Italy’s legal economy, a country historically plagued by the presence of criminal groups. The results indicate that during periods of economic and social downturn, organised crime may capitalise on the weaknesses of the institutional response to the crisis, consolidating and possibly expanding, its role as an investor in the legal economy.

Ethan Ilzetzki, 06 July 2020

The UK economy is suffering its worst recession in centuries, with national income declining and unemployment rising at unprecedented rates. This column reports on the latest Centre for Macroeconomics survey, which reveals that despite this worrisome news, the panel is optimistic that the UK economy will recover to its pre-pandemic trend within five years or less, no worse than past UK recessions. Panellists emphasised that these predictions depend on the government effectively containing the spread of the virus and not reverting to austerity policies following the pandemic. The panel was split on the biggest risks to the pace of recovery, with firms’ productive capacity, scarring effects of unemployment, and a slow demand recovery cited as prominent concerns. 

Aida Caldera, Shashwat Koirala, 30 June 2020

International cooperation amplifies individual countries’ efforts; in the fight against the COVID-19 pandemic, international cooperation is not only useful, but indispensable. This column discusses eight priorities to strengthen international cooperation against COVID-19, both in the short term for crisis response, and to facilitate an inclusive and sustainable recovery. In the short run, cooperation between governments is needed to curb the pandemic and expedite exit from the crisis. In the medium and long run, internationally coordinated policies can facilitate recovery and the rebuilding of socioeconomic systems in inclusive and sustainable ways and help prepare for future risks and pandemics.

Stefano Federico, Fadi Hassan, Veronica Rappoport, 25 June 2020

In a period where the backlash against trade and globalisation is at historical high point, it is crucial to understand the frictions that prevent a full realisation of the gains from trade. This column takes evidence from Italy and contributes to the debate by identifying a novel channel: the endogenous funding constraint of banks whose loan portfolios are affected negatively by the liberalisation. There are spillovers between ‘losers’ and ‘winners’ from trade that operate through banks, which hinder the reallocation of resources towards firms that should actually expand after the liberalisation.

Sabrina Howell, Josh Lerner, Ramana Nanda, Richard Townsend, 14 May 2020

Governments worldwide have taken steps to bolster their venture capital sectors in response to the COVID-19 crisis. This column questions whether venture-backed innovation is particularly vulnerable to economic downturns, and finds that early-stage venture investment falls sharply during recessions. The quantity and quality of venture-backed innovation declines particularly for early-stage firms, underscoring the concerns that motivate such policy initiatives. Still, questions remain about the optimal design and public return of these expenditures.

Valerie Cerra, Antonio Fatás, Sweta C. Saxena, 14 May 2020

As many countries enter deep economic downturns, many wonder about the shape and length of the recession, as well as the steepness of the recovery. Past recessions have left permanent scars on long-term growth, known as hysteresis. This column reviews the hysteresis academic literature to gain insights on the current crisis and the policies that should be put in place to minimise its long-term effects. Continued macroeconomic stimulus, where policy space exists, is needed using an array of instruments. Now is not the time to err on the side of caution when it comes to expansionary economic policies.

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.

Andrea Ichino, Giacomo Calzolari, Andrea Mattozzi, Aldo Rustichini, Giulio Zanella, Massimo Anelli, 25 March 2020

The world economy cannot survive the current social distancing for more than a few weeks. This column proposes a viable strategy to address the joint health and economic crisis caused by COVID-19, which involves gradually sending the young who face the lowest risks back to work on a voluntary basis. This should happen as soon as the congestion of healthcare systems is less critical, but while a large fraction of the population is not yet immune. All of these workers in centrally relevant sectors must be temporarily separated from the old and the immunocompromised. They must also be frequently tested for COVID-19 and for subsequent immunity as well as monitored to immediately trace the contagion they may induce or receive.

Steven Hamilton, Stan Veuger, 21 March 2020

The threat posed by the pandemic cannot be addressed simply by relying on Keynesian demand stimuli. This column explores the notion of using public spending to build a bridge for businesses during this unprecedented period. The EU needs to be open to a variety of new policy measures to meet the challenge head on, perhaps even turning to Eurobonds to deal with lingering fiscal sustainability concerns going forward.

Romesh Vaitilingam, 14 March 2020

As tumbling stock markets indicated growing fears about the potential economic impact of the coronavirus, the IGM Forum at Chicago Booth invited its panels of leading economists in the US and Europe to express their views on the likelihood of a major recession. This column reveals a broad consensus across the experts that there will be a sharp downturn in the economy, but less agreement on how prolonged the dip is likely to be. Asked about the relative importance of supply and demand shocks damaging the economy, reactions were more mixed. But over two-thirds of the European economists are highly doubtful of the readiness of the economic policy institutions of the euro area to respond effectively to the potential damage from COVID-19.

Franck Portier, 03 May 2019

Business economists argue that the length of an expansion is a good indicator of when a recession will hit. Using both parametric and non-parametric measures, this column finds strong support for the theory from post-WWII data on the US economy. The findings suggest there is good reason to expect a US recession in the next two years.

Antonio Fatás, 14 March 2019

Jeffrey Frankel, 04 September 2018

Stefan Gerlach, Rebecca Stuart, 11 July 2018

Many market commentators are worried that the gradual flattening of the US term structure in recent months is indicative of an increased risk of a recession. This column argues that the term structure contained information about the likelihood of a future recession even before the establishment of the Federal Reserve, suggesting that the information content does not arise solely as a consequence of countercyclical monetary policy.

Andrea Bassanini, Federico Cingano, 16 April 2018

Structural reforms can trigger and sustain economic growth, but they can also present transitory costs that policymakers seek to avoid during economic downturns. This column analyses the short-term response of employment levels to product and labour market reforms. While reforms entail non-negligible transitory employment losses on average, the losses are smaller for reforms implemented during economic upswings and in countries with significant labour market dualism.

Elva Bova, Tidiane Kinda, Jaejoon Woo, 07 February 2018

Understanding the distributional consequences of fiscal adjustment measures is important for equity, but also to ensure the sustainability of the measures. This column shows that fiscal adjustments increase inequality, including through unemployment. Spending-based adjustments worsen inequality more significantly than tax-based adjustments. Progressive taxation and targeted social benefits and subsidies introduced in the context of a broader decline in spending can help offset some of the distributional impact of fiscal adjustments.

Pierre Cahuc, Stéphane Carcillo, Thomas Le Barbanchon, 09 January 2018

Despite their widespread use in the US and across Europe during the Global Crisis, the empirical evidence on the effectiveness of hiring credits is unclear, particularly in the context of recessions. This column uses the French hiring credit programme of 2008-09 to show that credits can be very effective at boosting job creation at low cost when they are unanticipated and temporary.

Jan-Emmanuel De Neve, 17 November 2017

How do people respond to variations in economic growth? In this video, Jan-Emmanuel De Neve explains how the recent recession negatively affects people's wellbeing. This video was recorded at the Centre for Economic Performance (LSE) in September 2014.

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