Using data on daily credit line drawdowns at the firm-loan-level, a study by Viral Acharya and Sascha Steffen examines the pandemic-driven ‘dash for cash’ among firms and how the stock market priced firms differentially based on liquidity. Sascha Steffen talks to Tim Phillips about the pandemic-driven ‘dash for cash’ among firms and how the US stock market rewarded firms with access to liquidity through either cash or committed lines of credit from banks. High-quality investment-grade firms issued bonds in public capital markets, particularly after the Federal Reserve Bank initiated its corporate bond-buying programme. In contrast, bond issuances of the lowest-rated investment-grade firms remained mostly flat; instead, these firms rushed to convert their credit line commitments from banks into cash, accounting for about half of all the credit line drawdowns. Consistent with the risk of becoming a fallen angel, this dash for cash has been driven by the lowest-quality BBB-rated firms.
Video Vox
When we look at countries and cities, could their relative rates of Covid-19 mortality possibly mirror the data from the flu pandemic of a century ago? And if so, what makes some places better than others at learning from experience?
Christopher Meissner of UC Davis tells Tim Phillips whether, when it comes to fighting pandemics, history is destiny.
Talking international trade, Gita Gopinath has pointed out how trade barriers destabilise the global economy and have to be considered harmful especially at times of already slowing growth. She explains how times have changed in recent years, after a decades-long push by many countries to lower trade barriers. “The global trading system was moving towards much greater integration, and for the first time we saw a reversal,” Gopinath explains. “Countries stepping back, unsure about the gains from international trade. That’s a sense in which these times are quite unique.”
There have been regular news stories about how female leaders have done a better job at responding to the Covid-19. Is this really true, or just a media narrative based on a tiny sample? Supriya Garikipati of Liverpool University and Uma Kambhampati at Reading Tell Tim Phillips about how gender-based differences in leadership style may have saved lives and helped economies reopen earlier.
In the UK non-essential shops are opening again and restaurants, bars and offices will follow. But are policymakers making the right decisions? Monica Costa Dias and Rob Joyce tell TIm Phillips about who is, and is not, working at the moment, and what lockdown easing will mean for employment in the UK.
A regular part of Gita Gopinath's agenda at the IMF is the World Economic Outlook, which is essentially a growth projection for the upcoming year, but also includes policy advise to address global or country-specific challenges. The outbreak of the coronavirus or the US China trade tensions are developments Gopinath and her team monitor closely, to adjust their growth projections and discuss policy responses.
When the coronavirus crisis hit the global economy, Gopinath said it was the “worst recession since the Great Depression”. In April 2019, the IMF projected global growth in 2020 to fall to -3 percent, which was a downgrade of 6.3 percentage points in less than three months. “We’ve had a hundred countries approach us for emergency financing,” says Gopinath. “It’s never happened before. That tells you the gravity of this crisis.”
Together with her research colleagues, Gita Gopinath developed the Dominant Currency Paradigm. Unlike other standard economic models, it takes into account that prices in global trade are predominantly not set in either the producer’s or destination’s currency but are set in dollars. The economists found that when most transactions are dollar denominated, a currency depreciation is rather unlikely to increase exports.
“When you’re in this world of dominant currency pricing, you don’t really see a big export boost that comes immediately after your currency weakens,” says Gopinath.
At the same time, a currency depreciation relative to the dollar leads to an increase in the price of imported goods, which means high pressures on inflation.
As part of her work to foster sustainable growth, Gita Gopinath emphasises how countries need to ensure that all people can benefit from new growth opportunities. Taking action that boosts economic growth while at the same time improving inclusiveness is needed across all economies, according to Gopinath. “How do you continue to raise income levels and improve the livelihoods of people while at the same time not creating increased inequality? How do we get people who have otherwise not been big participants in the global economy to play a bigger role? All of this is important for sustainability.”
Even pre-Covid-19 there were signs of manufacturing FDI movement away from China.
Alicia Garcia-Herrero, recorded 21 May 2020 at CEPR / LSE IGA / SPP webinar on:
Recovering from COVID-19 – China and global value chains in the wake of the pandemic
Although coronavirus infection rates have dropped considerably in China and businesses are starting to return to something resembling normality, there is still a high state of alert and outbreaks are treated with an immediate and firm response.
Huang Yiping, recorded 21 May 2020 at CEPR / LSE IGA / SPP webinar on:
Recovering from COVID-19 – China and global value chains in the wake of the pandemic