Shaun P. Hargreaves Heap, Christel Koop, Konstantinos Matakos, Asli Unan, Nina Weber, 06 June 2020

The behavioural interventions to control the spread of COVID-19 present trade-offs between health and wealth. To be successful, an understanding of how the public currently values lives over economic loss is needed. A survey experiment in the US and UK finds that people highly prioritise saving lives, but this valuation will change as economic losses mount. Individual differences in valuation also predict individual compliance with COVID-19 policies, and information on COVID-19 deaths and income losses can affect valuations. Caution in relaxing the lockdown will help build public support and mitigate polarising effects and, through increasing compliance, improve its economic efficacy.

Jeffrey Chwieroth, Andrew Walter, 23 May 2020

Although necessary, many of the economic policy responses to the COVID-19 crisis may end up damaging political incumbents in the medium and long term. This column presents evidence suggesting that voters expect great things from their leaders in deep crises. Yet the potential for great disappointment arises from the inevitable perceived inequities that will follow from the coronavirus crisis bailouts. As the pandemic exacerbates existing divisions within societies, the political costs predicted implies that only a minority of the most skilled political leaders are likely to survive this crisis.

Olivier Darmouni, Oliver Giesecke, Alexander Rodnyansky, 20 May 2020

The share of firms’ borrowing from bond markets has been rising globally. This column argues that euro area companies with more bond debt are disproportionately affected by surprise monetary shocks, compared to firms with mostly bank debt. This finding stands in contrast to the predictions of a standard bank lending channel and points toward frictions in bond financing. This provides lessons for the conduct of monetary policy in times of hardship such as COVID-19, when the corporate sector suffers from liquidity shortages.

Guillaume Chapelle, 20 May 2020

Non-pharmaceutical interventions such as school closures and social distancing were implemented in the US against the spread of the 1918 influenza pandemic. This column explores the effect of these interventions on economic activity and death rates in US cities during and after 1918. The policies lowered the fatality rate during the peak of the pandemic but are associated with a significant rise in the death rate in subsequent years, possibly through reducing herd immunity. Their impact, positive or negative, on the growth of the manufacturing sector in US cities remains an open question.

Alina Kristin Bartscher, Moritz Kuhn, Moritz Schularick, 18 May 2020

Household debt-to-income has quadrupled in the US since WWII. This column presents historical evidence suggesting that debt-to-income ratios have risen most dramatically for middle-class households with low income growth. Middle-class households have increasingly tapped into rising housing wealth to finance spending in excess of income. Home-equity based borrowing accounts for 50% of the increase in US housing debt and turned the middle-class into the epicentre of financial fragility. 

R. Maria del Rio-Chanona, Penny Mealy, Anton Pichler, François Lafond, J. Doyne Farmer, 16 May 2020

Many researchers have studied the adverse impacts of the negative supply shock due to measures taken to combat the spread of COVID-19. This column provides estimates of occupation- and industry-specific effects of both the supply and the demand shock for the US. US GDP is predicted to decline by 22% compared to the pre-COVID-19 period, and 24% of US jobs are likely to be vulnerable. The adverse effects are further estimated to be strongest for low-wage workers who might face employment reductions of up to 42% while high-wage workers are estimated to experience a 7% decrease.

Chang Ma, John Rogers, Sili Zhou, 13 May 2020

Forecasting the progress and impact of COVID-19 is central to the planning of policymakers around the world. This column provides a historical perspective by examining the immediate and bounce-back effects from six post-war disease shocks. GDP growth contractions are immediate and sizeable, but vary across countries. Despite an immediate ‘bounce back’, GDP tends to remain below its pre-shock level for several years. The negative effect on GDP is felt less in countries with larger first-year responses in government spending, especially on health care, and the indirect effects on GDP growth from affected trading partners are also important.

Francesco Bianchi, Renato Faccini, Leonardo Melosi, 13 May 2020

Fighting the consequences of the COVID-19 pandemic poses a difficult task for fiscal and monetary authorities alike. The current low interest rate environment limits the tools of central banks while the record high debt levels curtail the efficacy of fiscal interventions. This column proposes a coordinated policy strategy aiming at creating a controlled rise of inflation and an increase in fiscal space in response to the COVID-19 shock. The strategy consists of the fiscal authority introducing an emergency budget while the monetary authority tolerates an increase in inflation to accommodate this emergency budget.

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.

Marcus Painter, Tian Qiu, 11 May 2020

Social distancing is vital to mitigate the spread of the novel coronavirus. Leveraging smartphone geolocation data, this column examines how political beliefs impact the effectiveness of state-level social distancing orders in the US. The findings suggest that Republicans and misaligned Democrats are less likely to adhere to social distancing orders. Bipartisan support for social distancing measures thus appears to be a key factor in how quickly we can mitigate the spread of the novel coronavirus.

Alexander Bick, Adam Blandin, 06 May 2020

As this column is published, the most recent government labour market statistics for the US refer to the week of 8-14 March, and so do not yet reflect the impact of the Covid-19 outbreak. This column uses a series of real-time labour market surveys of US households to document labour market outcomes more rapidly and more often than traditional government surveys. The estimates point to unprecedented devastation in the US labour market. New surveys will be run throughout the summer.

Nicholas Bloom, Fatih Guvenen, Sergio Salgado, 05 May 2020

During recessions, some firms and industries get hit far harder than others. This column argues that the current COVID-19 crisis is no exception. While most firms have experienced a negative demand shock, firms in the entertainment, services, and manufacturing sector have experienced a dramatic decline in sales that is likely to persist over several months. The increase in the probability of firm-level disasters or, more precisely, the decrease in the skewness of the distribution of firms’ shocks, will play a significant role in the response of aggregate output and employment. 

Nicolas Ajzenman, Tiago Cavalcanti, Daniel Da Mata, 02 May 2020

Regardless of their scientific soundness, COVID-19 recommendations from political leaders such as President Trump are taken seriously by followers. In Brazil, President Bolsonaro has publicly flaunted social distancing measures and downplayed the seriousness of the disease in at least two well-publicised instances. This column analyses the effects of Bolsonaro’s actions and speeches in the month of March on Brazilians’ social-distancing behaviours, using electoral data and geo-localised mobile phone data from 60 million devices. The findings suggest that social distancing behaviour decreased in municipalities with stronger support for Bolsonaro.

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.

Ricardo Caballero, Alp Simsek, 30 April 2020

The Covid-19 shock has caused large turmoil on financial markets. This column argues that non-financial supply shocks such as the current one can endogenously lead to financial shocks and severe contractions in asset valuations and aggregate demand, which substantially amplify a recession. Conventional monetary policy can mitigate the downward pressure as long as the interest rate is unconstrained. If it is, large-scale asset purchases by government facilities are needed to prevent a downward spiral.

Efraim Benmelech, Carola Frydman, 29 April 2020

The immediate economic fallout for the US economy from the coronavirus pandemic is predicted to be disastrous. In comparison, while the Spanish flu also had some economic consequences, they were mostly modest and temporary. This column evaluates the developments in the US economy during the 1918 influenza, in search of a possible explanation for the limited adverse effects of the flu despite similar social distancing requirements, albeit at a lower scale. It concludes that a large expansion in government demand can go a long way in softening the economic impact of the crisis we face today. 

Laura Kodres, 28 April 2020

Amid the uncertainty of the COVID-19 pandemic, the movements in equity markets’ around the world have mirrored the spread of the virus and its virulence. Attempts to limit market crashes, volatility, and financial contagion have taken a number of different forms. This column explores the two main policy responses available to financial market regulators – bans on short sales versus circuit breakers – and reviews them in the context of some ‘best practices’ for market regulation.

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.

Christian Bayer, Benjamin Born, Ralph Luetticke, Gernot Müller, 24 April 2020

Among the various measures announced in response to the economic fallout caused by the COVID-19 pandemic, the $2 trillion stimulus package legislated in the US at the end of March 2020 stands out in terms of size. This column quantifies the multiplier of the stimulus’s transfer component. It finds that transfers which top up unemployment benefits are particularly effective because they reduce the income risk due to the lockdown ex ante. In this case, the multiplier may be as high as 2.

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