Key Findings from CEPR Covid Economics: Vetted and real-time papers
Covid Economics: Vetted and Real-Time Papers
The economics profession reacted very strongly to the World Health Organization’s confirmation that the novel coronavirus outbreak constituted a global pandemic, and by the end of March CEPR had launched a new publication bringing together vetted and real-time papers to inform scholars and decision-makers in the world’s fight against Covid-19.
‘Covid Economics: Vetted and Real-Time Papers’ – edited by Professor Charles Wyplosz of the Graduate Institute, Geneva, and published by the Centre for Economic Policy Research (CEPR) – has already published over 40 issues. Below are some of the key findings in issues 1-37.
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TOPICS IN FOCUS
• EFFECTS OF CONTAINMENT MEASURES ON COVID-19 CONTAGION
Group testing against Covid-19
Group testing can be used to multiply the power of tests for Covid-19, according to Christian Gollier and Olivier Gossner. They argues that it can be used for estimating virus prevalence to measure the evolution of the pandemic, bringing negative groups back to work to exit the current lockdown, and testing for individual infectious status to treat sick people. For an infection level around 2%, group testing could multiply the power of testing by a factor of 20. The implementation of this strategy in the short run requires limited investments and could bypass the current immense shortage of testing capacity.
Testing and Covid-19 infections in New York City neighbourhoods
Analysis of the number of tests and the number of infections at the New York City zip-code level shows that people in poor or immigrant neighbourhoods were less likely to be tested; but the likelihood that a test was positive was larger in those neighbourhoods, as well as in neighbourhoods with larger households or predominantly black populations. The study by George Borjas concludes that the non-randomness in testing across New York City neighbourhoods indicates that the observed correlation between the rate of infection and the socioeconomic characteristics of a community tells an incomplete story of how the pandemic evolved in a congested urban setting.
Why Covid-19 mortality in Lombardy is so high
In the SEIR model of the spread of infectious diseases (susceptible – exposed – infectious – recovered), which has become standard during the Covid-19 crisis, once susceptible individuals are first exposed and then infected, they succumb with a given probability. The extended model includes a hospitalisation process and the possibility that hospitalised patients, who need to resort to an intensive care unit (ICU), cannot find availability because the ICU is saturated. This constraint creates an additional increase in mortality, which explains the dynamics of Covid-19-related mortality in Lombardy.
The case for universal cloth mask adoption and boosting the supply of medical masks for health workers
Universal adoption of cloth facemasks, including homemade masks, will slow the spread of the Covid-19 virus by reducing transmission from asymptomatic individuals, according to research by Judith Chevalier and colleagues. Their analysis of cross-country data indicates that facemask use slows the growth rate of cases and deaths, each facemask generating thousands of dollars in value from reduced mortality risk. Each medical mask, when used by a healthcare worker, may generate millions of dollars in value, and policies to encourage greater production prioritised for health workers are urgently needed.
Private consumption behaviour as mitigations for health workers
Changes in private consumption behaviour across sectors of the economy can act as a potent mitigation mechanism during an epidemic or when the economy is re-opened after a temporary lockdown, according to research by Dirk Krueger and colleagues. They show that the ‘Swedish solution’ of letting the epidemic play out without government intervention and allowing people to shift their sectoral behaviour on their own can lead to a substantial mitigation of the economic and human costs of the Covid-19 crisis, avoiding more than 80% of the decline in output and of number of deaths within one year, compared with a model in which sectors are assumed to be homogeneous.
Stratified periodic testing rather than universal random testing: a workable strategy
Regular testing of members of at-risk groups more likely to be exposed to SARS-CoV-2 would be a workable strategy for reducing the spread of Covid-19 and enabling the resumption of economic activity, according to a study by Matthew Cleevely and colleagues. Such ‘stratified periodic testing’ is a better use of scarce testing resources than ‘universal random testing’, as proposed by Paul Romer, which would require checking over 21% of the population every day to reduce the effective reproduction number of the epidemic, R’, down to 0.75.
Early restrictions on international air traffic could have slowed the spread of the virus
Early implementation of travel restrictions could be key to slowing the spread of future infections, according to a study of 34 mostly European countries reporting international flights to 154 destination countries in recent months. Author Sekou Keita warns that the design of a global emergency stop in international travel requires a high level of coordination at a multilateral level to preserve supply chains as much as possible.
Lockdown and testing help to curb Covid-19 transmission: new evidence
A new study investigates the effectiveness of lockdown and testing in curbing the transmission of Covid-19 infections by drawing on evidence from 69 countries across five continents. The results show that a lockdown significantly affects the number of confirmed cases after 7 days of its implementation and its lag effects are intact even after 21 days of implementation. Testing has no significant effects for at least 14 days after implementation. But after 21 days of implementation, the effects become significant.
Precaution, social distancing and tests: effects on contagion and the economy
Isolating symptomatic individuals has a large effect in delaying and reducing the peak of Covid-19 infections, according to a new study. The combination of this policy with a poor quality test represents only a negligible improvement, whereas with a high quality test, there is an additional delay and reduction in the peak of infections. Social distancing alone cannot achieve similar effects without incurring enormous output losses.
The research explores the combined effect of social distancing at early stages of the epidemic with a following period of tests, and finds that the best outcome is obtained with a light reduction in human interaction for about three months together with a subsequent test of the population over 40 days.
Mandated and targeted social isolation policies flatten the epidemic curve and can help to mitigate the associated employment losses
Mandating social distancing is very effective at flattening the epidemic curve but is costly in terms of employment loss, according to a new study analysing the rate of exposure to Covid-19 for 21 Chinese provinces and a selected number of countries.
But if social isolation policies are targeted towards individuals who are most likely to spread the infection, the employment loss can be somewhat reduced. Voluntary self-isolation driven by individual's perceived risk of becoming infected kicks in only towards the peak of the epidemic and has little or no impact on flattening the epidemic curve.
A new study presents economic analysis of an epidemic in which susceptible individuals may engage in costly social distancing to avoid becoming infected. Infected individuals eventually recover and acquire immunity, thereby ceasing to be a source of infection to others. Equilibrium social distancing arises around the peak of the epidemic, when disease prevalence reaches a critical threshold determined by preferences.
Spontaneous, uncoordinated social distancing thus acts to flatten the curve of the epidemic by reducing peak prevalence. The curve becomes flatter the more infectious the disease and the more severe the health consequences are for individuals.
Do lockdowns work? A counterfactual for Sweden
Is lockdown an effective means to limit the spread of the pandemic? New research looks at the case of Sweden – one of the few countries without a lockdown – using a ‘donor pool’ of European countries to construct a ‘doppelganger’ that behaves just like Sweden in terms of infections before the lockdown. The results indicate that infection dynamics in the doppelganger since the lockdown do not systematically differ from the actual dynamics in Sweden. Evidence from Google mobility data suggests that Swedes adjusted their activities in similar ways as in the doppelganger, although to a somewhat lesser extent.
Bowling together by bowling alone: How social capital affected US compliance with containment measures
People living in American counties with higher levels of social capital reduced their mobility to comply with social distancing advice and regulations earlier and to a higher degree than people in counties with low levels of social capital, according to a new study.
Since social capital comprises both a cognitive component (norms of reciprocity and trust) and a relational component (social relationships and networks) and because personal social interactions are implicated in the spread of viral infections, it might be thought that areas with high levels of social capital would be especially at risk during the pandemic. In fact, the opposite is the case.
The value of ‘soft’ containment measures – wearing masks and social distancing – for reducing contagion when easing lockdown: Evidence from Lombardy and London
Data from Great Britain on flows of people across space analysed in a ‘structural gravity’ framework provide a rationale for geographical quarantines during the pandemic. A new study offers a clear mapping from observed geography to the spread of a disease, making it possible to evaluate the impact of (expected and unexpected) mobility restrictions on social wellbeing in the face of a deadly disease.
QUARANTINE, CONTACT TRACING AND TESTING: new analysis of their effectiveness in reducing mortality and healthcare pressures
Permanent, high-intensity social distancing reduces mortality rates and peak demand for intensive care substantially. But a policy that relaxes high-intensity social distancing over time in the context of a permanent efficient quarantine regime is even more effective. Adding contact tracing and random testing to this policy further improves outcomes.
These are among the findings of a study of the relative effectiveness of policy interventions that include social distancing, quarantine, contact tracing and random testing.
HOW INTERNAL MIGRATION CAN SPREAD COVID-19: evidence from Italy
Regions in Italy with more exposure to return migration experienced more Covid deaths throughout nearly all stages of diffusion of the virus, according to a new study. The research notes that self-isolation and closure of economic activities in outbreak areas leave many people jobless or socially isolated. Recently settled migrants might therefore choose to return to their home towns, thus spreading the virus further.
As the one at the tenth percentile, Italy would have experienced around 2,000 fewer Covid deaths – that is, 22-24% fewer deaths than the regions outside the outbreak areas actually experienced.
Do lockdowns work? A counterfactual for Sweden
Permanent, high-intensity social distancing reduces mortality rates and peak demand for intensive care substantially. But a policy that relaxes high-intensity social distancing over time in the context of a permanent efficient quarantine regime is even more effective. Adding contact tracing and random testing to this policy.
Effectiveness of containment measures on the Covid-19 pandemic: Cross-country comparisons
Containment measures have been, on average, very effective in flattening the ‘pandemic curve’ and reducing the number of fatalities, according to a new cross-country study. These effects have been stronger in countries where containment measures have been implemented faster and have resulted in less mobility – de facto, more social distancing – and in those with lower temperatures, lower population density, a larger share of an elderly population and stronger health systems.
Among different types of containment measures, stay-at-home orders seem to have been more effective in reducing the number of deaths. But these adjustments benefitted mostly highly educated workers and white collars. Overall, low-income individuals faced worse labour market outcomes and suffered higher psychological costs.
Optimal control of an epidemic through social distancing
Social distancing measures are at the centre of the policy responses to Covid-19. New research presents an analysis of how to implement these measures optimally. By identifying the conditions under which different policy intensity levels are most effective, it is possible to establish how best to control the virus. In some cases, engaging in social distancing too early could actually increase the number of fatalities, and the optimal policy might be to delay social distancing in order to create ‘herd immunity’. Most importantly, optimal social distancing does provide an effective measure for substantially reducing the death rate of a disease.
Age-specific lockdown policies are more effective in developing countries
Blanket lockdowns are generally less effective in developing countries at reducing the welfare costs of the pandemic, saving fewer lives per unit of lost GDP. That is the key finding of a new study. Age-specific lockdown policies, on the other hand, may be even more potent in developing countries, saving more lives per unit of lost output than in advanced economies.
Après-ski: The spread of coronavirus from Ischgl through Germany
German lockdown measures have halted the spread of Covid-19, according to a study of the Austrian ski resort of Ischgl, which is commonly claimed to be ‘ground zero’ for the diffusion of the virus across Germany. Drawing on data for 401 German counties, the researchers find that conditional on geographical latitude and testing behaviour by health authorities, road distance to Ischgl is an important predictor of infection cases, but — in line with expectations — not of fatality rates. Were all German counties located as far from Ischgl as the most distant county of Vorpommern-Rügen, Germany would have seen about 48% fewer Covid-19 cases.
Optimal case detection and social distancing policies to suppress Covid-19: Evidence from Italy
Social distancing and case detection measures are crucial tools for policy-makers to tackle the Covid-19 crisis. New research presents a theoretical approach to finding the optimal combination of policies. If case detection is sufficiently efficient, social distancing vanishes wholly and quickly; otherwise, it needs to stay in place until a vaccine arrives. In the case of Italy, if policy-makers adopt digital contact tracing, total suppression costs would come to 0.8% of annual GDP, compared with the current detection efficiency level, which is projected to cost at least 14% of GDP.
Lockdown strategies, mobility patterns and Covid-19: Evidence on which measures are most effective in reducing infections
The timing, type, and intensity levels of lockdown measures could all have substantial effects on new cases of Covid-19. New research finds evidence to suggest that cancelling public events and imposing restrictions on private gatherings followed by school closures have the most pronounced quantitative effects on reducing the daily incidence of Covid-19. These measures are followed by workplace as well as stay-at-home requirements, whose statistical significance and levels of effect are not as pronounced. In contrast, no significant effects are found for international travel controls, public transport closures, or restrictions on movements across cities and regions.
Fast and local: The most effective lockdown policies for reducing mortality
The effectiveness of lockdown measures is likely to vary across different countries and regions. New research analyses whether the various types of lockdowns implemented around the world have mitigated the surge in infections and reduced Covid-19 mortality, and whether their effectiveness differs in developing versus developed countries. Reducing movements within countries has been effective in developed economies (averting about 650,000 deaths), but not in developing ones. Furthermore, countries that acted fast fared better, and closing borders has had no appreciable effect, even after fifty days of measures being place.
Rainfall-induced early social distancing reduced Covid-19 outbreaks
Social distancing measures have been at the centre of policy-makers’ responses to Covid-19. Increased rainfall may have had an impact on implementing the restrictions. New research takes country-level rainfall data and shows that, even after controlling for historical rainfall, temperature, and state fixed-effects, current rainfall is a plausibly exogenous instrument for social distancing. This effect is driven by a reduction in the chance of a very large outbreak, and suggests that early distancing may have sizeable returns, with random events early in an outbreak having persistent long-run effects.
Earlier air travel restrictions would have reduced Covid-19 mortality
International air travel may have been a key factor in the rapid spread of Covid-19. A new study analyses how air traffic across countries contributed to the propagation of the virus, providing estimates to show that air travel-induced cases amount to approximately 8-9% of all confirmed cases. There is also evidence to show that air travel restrictions had a marked impact in reducing the progression of the pandemic from April onwards. Closing all air traffic four weeks earlier could have prevented between 7,000 and 7,800 deaths, suggesting that spatial distancing might be a cost-effective way to tackle the crisis.
Lockdowns strictness and Covid-19 deaths: Evidence from Scandinavia
New research estimates the impact of non-pharmacological interventions on Covid-19 deaths in different countries in Scandinavia. The authors exploit policy variation between Denmark and Norway on the one hand, and Sweden on the other. The former pair deployed relatively stringent lockdowns, whereas the latter did not. The ‘difference-in-differences’ models suggest that the stricter lockdown policies imposed by Denmark and Norway are associated with fewer Covid-19 deaths, providing a critique of Sweden’s less strict response.
Latent social distancing: New analysis
Countries across the world responded to the pandemic with what might well be the biggest state-led mobility and activity restrictions in the history of mankind. New research explores the effectiveness of the responses, using an instrumental variable approach to estimate the causal effect of these restrictions on mobility and the growth rate of confirmed cases and deaths. While stricter measures affected mobility, stringency in seven to fourteen days matters more for containing the contagion. Further, even though the restrictions reduced mobility more in less developed countries, the causal effect of a reduction in mobility was higher in more developed countries.
Super spreading events: New evidence of the threat of new waves of Covid-19 from large physical gatherings
New economic research indicates that efforts to reduce the occurrence of ‘super spreading events' can significantly mitigate the uncertainty facing society about the future path of Covid-19 infections. The study finds that even when the average number of new infections may seem to have stabilised at a low level in recent weeks, subsequent waves can suddenly arrive in the future.
The study shows that large geographical variations in infections may be driven mostly by idiosyncratic factors, and not by fundamental socio-economic factors. While many have looked for underlying differences in public health practices to explain variations, the new research shows that these variations may be more adequately explained by the presence of a few, idiosyncratic super spreading events.
Shutting down big sports events saves lives: Evidence from US professional hockey and basketball
Social distancing measures have played an important role in slowing the spread of Covid-19, but the policies are not without their costs, both economically and socially. New research offers an analysis of the impact of banning of mass gatherings, an intervention with comparably low costs.
The authors present evidence from the suspension of both the National Basketball Association and National Hockey League in the United States, providing an estimate of the effect of the cancellation of public sports fixtures. The results indicate that one additional mass gathering increases the cumulative number of Covid-19 deaths in affected countries by 13%, suggesting that shutting down large gatherings was, and is, a fundamental policy for combating the pandemic.
Lockdowns reduce people’s mobility far more than voluntary responses to news: Evidence from India
In response to the rapid spread of Covid-19 cases, many countries have focused on reducing mobility to curb the transmission of the virus. A combination of voluntary reductions and explicit social distancing measures has been employed by policy-makers to encourage drastic changes in citizens’ behaviour.
New research evaluates the policy response in India, focusing on state-level interventions that began up to two weeks prior to the national lockdown. The results show that while people did seek information in response to the perception that Covid-19 had ‘reached’ their state, they did not reduce out-of-home mobility significantly. But starting from the second day after the lockdown, time spent in residence increased significantly for each day.
The value of a statistical life: A measure that is inaccurate for policies seeking to mitigate large risks
The value of a statistical life (VSL) is a concept that can be used to estimate an individual’s willingness to pay for a small change in fatality risk. While not without its controversies, the measure has played a central role in analysis of the spread of Covid-19 in emerging economies.
But new research challenges the usefulness of VSL, arguing that it is only an approximation and may become inaccurate for policies that mitigate large risks. The results of the study suggest that the relative valuation of risks and financial costs produced by such a method lack intuitive support. In short, policy-makers need to reconsider the use of VSL.
The effect of uncertainty on lockdown success: Finding the optimal policy with imperfect information
In most countries, the decision to exit from lockdown has been made without knowing the reproduction number of infections that would prevail following the easing of restrictions. New research explores the role of uncertainty and learning on the optimal dynamic lockdown policy.
The results suggest that in the absence of uncertainty, the optimal confinement policy is to impose a constant rate of lockdown until suppression of the virus in the population is achieved. But it also shows that introducing uncertainty about the reproduction number of ‘deconfined’ people reduces the optimal initial rate of confinement.
Covid-19 fatality reports: A comparison of England and Mexico
Understanding the determinants and implications of delays in reporting Covid-19 deaths is important for managing the pandemic. New research contrasts the experiences of Mexico and England, revealing that reporting delays in Mexico are larger on average, and exhibit higher geographical heterogeneity. Mexican reporting delays are also more responsive to the total number of occurred deaths in a given location.
These results suggest that low- and middle-income countries are likely to face additional challenges during the pandemic due to a lower overall quality of real-time information.
Stronger lockdown in Sweden would have saved lives
Sweden’s relatively light response to the Covid-19 pandemic has attracted a lot of attention. New research evaluates the policy against a counterfactual scenario in which a strict early lockdown had been imposed to curb the spread of the virus.
The study finds that a stronger response would have reduced the infection cases in Sweden by more than half. Furthermore, as people dramatically adjust their behaviour in response to new information and policy updates, the impact of non-pharmaceutical interventions becomes visible.
The results suggest that lockdown measures would have lowered excess mortality in Sweden by 23 percentage points, with a steep age gradient of more than 30 percentage points for the most vulnerable elderly cohort.
US stay-at-home policies saved lives
Google mobility data can provide useful insights into the voluntary behavioural changes adopted by citizens across various US states in response to Covid-19. A new study indicates that removing non-essential business closures (while maintaining school closures, restrictions on movie theatres and restaurants) could have led to significant changes in the number of cases and deaths by the end of May 2020.
The research shows that without stay-at-home orders, cases would have been larger by between 25% and 170%, which implies that 0.5 to 3.4 million more Americans could have been infected if the orders had not been implemented. Not having implemented any policies could have led to at least a seven-fold increase in cases (and deaths) by the end of May, with considerable uncertainty over the effects of school closures.
Weather, social distancing, and the spread of Covid-19
Social distancing measures have led many people to move their social activities outdoors. New research focuses on the relationship between the weather and the spread of Covid-19. The results show that weather and mobility are highly correlated: temperature has a negative and significant effect on future Covid-19 cases and deaths, and, controlling for weather, overall mobility has a large positive effect on subsequent growth in cases and deaths.
Public health non-pharmaceutical interventions affect future Covid-19 cases and deaths, but their effects work entirely through, and not independent of, individuals' mobility behaviour. The results also show that the dynamic effects of mobility on Covid-19 outcomes are generally similar across counties, though there is evidence of larger effects in counties with high cases per capita and in those that reduced mobility relatively late.
Effectiveness of lockdown measures: Evidence from Germany
In order to get the COVID-19 pandemic under control, most governments around the globe have adopted some sort of containment policies. In the light of the enormous costs of these policies, in many countries highly controversial discussions on the adequacy of the chosen policies evolved.
New research contributes to the debate by evaluating three waves of containment measures adopted by the German government. The results show that in retrospect, only the first wave of containment measures clearly contributed to flattening the curve of new infections. But a real-time analysis reveals that based on the then available information, the adoption of additional containment measures was indeed warranted.
Crucially, policy-makers should note that a one-size-fits-all policy (as it was adopted in Germany on the early stages of the epidemic) is not optimal.
Lockdown in Germany: Testing the effectiveness in the fight against Covid-19
Lockdown measures and social distancing guidance are at the centre of governments’ non-pharmaceutical interventions for combating Covid-19. New research aims to assess the effectiveness of these interventions in terms of revealing their impact on infections over time.
Analysing data on the dynamics of the virus in Germany, the study shows that the decline of infections in early March 2020 can be attributed to relatively small interventions and voluntary behavioural changes. But subsequent relaxation of measures did not induce a new increase in infections, which throws into doubt the effectiveness of most German interventions.
Covid-19 in India: Assessing the impact of lockdown measures
The Covid-19 pandemic has put the global economy under enormous pressure. New research offers an analysis of the effects of the pandemic in India. In this context, using daily state-level data, the authors use the staggered timing of the implementation of lockdown to assess its impact on the number of Covid-19 cases.
The results seem to suggest that notwithstanding the lockdown, the number of Covid-19 cases increased by 80%. Furthermore, there was a differential impact across states, depending on their extent of health preparedness.
Economic resilience, globalisation and market governance: facing the Covid-19 test
The lack of anticipation of a worldwide disruptive event such as the spread of Covid-19, combined with the breakdown of market mechanisms for the most essential products needed to fight the disease, has left many governments unsure of how to react. The humanitarian goal of saving as many lives as possible has come, in some countries, at the cost of confining the entire population, considered the only option available given the circumstances. The economic cost of such a solution, which brings the economies of these countries to a standstill and disrupts global value chains, is likely to be followed by several years of economic depression that will dwarf the cost of the 2008 financial and economic crisis. A study by Frederic Jenny discusses these challenges.
Economic effects of a mega-city lockdown to contain Covid-19: evidence from Japan
The lack of anticipation of a worldwide disruptive event such as the spread of Covid-19, combined with the breakdown of market mechanisms for the most essential products needed to fight the disease, has left many governments unsure of how to react. The humanitarian goal of saving as many lives as possible has come, in some countries, at the cost of confining the entire population, considered the only option available given the circumstances. The economic cost of such a solution, which brings the economies of these countries to a standstill and disrupts global value chains, is likely to be followed by several years of economic depression that will dwarf the cost of the 2008 financial and economic crisis. A study by Frederic Jenny discusses these challenges.
Economic benefits of social distancing
Research by Michael Greenstone and Vishan Nigam projects that three to four months of moderate social distancing in the United States beginning in late March 2020 would save 1.7 million lives by 1 October. Of the lives saved, 630,000 are due to avoided overwhelming of hospital intensive care units. Using the projected age-specific reductions in death and age-varying estimates of the US government’s value of a statistical life, the mortality benefits of social distancing are about $8 trillion or $60,000 per US household.
National containment policies and international cooperation
Policies that curtail social and economic activities during a pandemic are predominantly decided at the national level but have international ramifications. Research by Thorsten Beck and Wolf Wagner examines what type of inefficiencies this may create and how cooperation across countries may improve outcomes. The findings suggest that the first-best solution is global coordination on public health responses, including domestic containment policies. In the absence of ability to coordinate on the global level, regional coordination is needed.
Social distancing in a pandemic
A study by Robert Shimer and colleagues lays out three key features of the optimal policy in a pandemic: it imposes immediate, discontinuous social distancing; it keeps social distancing in place for a long time or until treatment is found; and it is never extremely restrictive, keeping the effective reproduction number mildly above the share of the population susceptible to the disease.
A cost-benefit analysis of the Covid-19 disease
The UK government has been debating how and when to escape from the lockdown without provoking a resurgence of Covid-19. There is a growing recognition of the damage the lockdown is causing to economic and social life, including deaths and illness among the non-infected population. A study by Robert Rowthorn uses cost-benefit analysis to conclude that the lockdown should be continued for some weeks; and if there is an inexpensive way of reducing the net reproductive rate of the disease to r=1, this policy should be adopted within a few weeks of exiting lockdown. It is not cost-effective to linger in intermediate stages with more expensive policies designed to keep r well below unity with the hope of eradicating the disease.
Containment measures produce a milder recession
Public health measures are essential when social and economic interactions transmit infectious diseases such as Covid-19 because individuals do not take sufficient account of their impact on others. New research calibrated to the main features of Covid-19 in the US economy shows that private individuals perceive the cost of an additional infection to be around $80,000 whereas the social cost is more than three times higher, around $286,000.
This misvaluation has stark implications for how society ultimately overcomes the disease: individually rational susceptible people act cautiously to flatten the curve of infections, but the disease is not overcome until herd immunity is acquired, with a deep recession and slow recovery lasting several years. By contrast, the socially optimal approach isolates the infected and quickly contains the disease, producing a much milder recession.
Using big data technology to resolve the saving lives versus saving livelihoods dilemma: evidence from China
What is the likely effectiveness of big data technology in mitigating the economic and health impacts of the Covid-19 outbreak. A new study makes use of the staggered implementation of contact-tracing apps called ‘health code’ in 322 Chinese cities during the pandemic.
Neha Bairoliya and Ayse Imrohoroglu | Issue 13: May 04
Older adults and those with underlying medical conditions seem especially vulnerable to the pandemic. On the other hand, the US government’s efforts to contain the infection have a disproportionate impact on the working age population.
New research finds that mitigation efforts that target certain age and health groups result in significantly smaller disruptions in the economy. Going forward, introducing subsidies to those with underlying health conditions and/or the elderly to self-isolate might prove to be a useful path in opening up the economy.
Determinants of social distancing and economic activity during Covid-19: evidence that voluntary behaviour changes are as significant as containment measures
New research uses Google mobility data to identify the determinants of social distancing during the Covid-19 outbreak. The results suggest that much social distancing happens regardless of non-pharmaceutical interventions such as closing non-essential business, sheltering in place and school closings. This suggests that restrictions may often function more like a coordinating device among increasingly predisposed individuals than repressive measures per se.
The results are consistent across countries’ income groups with only the poorest showing limited effect of non-pharmaceutical interventions, and no voluntary component, consistent with resistance to abandon sources of livelihood. The direct impact of the voluntary component on economic activity by the fact that the majority of the fall in restaurant reservations in the United States, and movie spending in Sweden occurred before the imposition of any non-pharmaceutical interventions. Widespread voluntary demobilisation implies that releasing constraints may not yield a V-shaped recovery if the reduction in Covid-19 risk not credible.
Health versus wealth? Public health policies and the economy during Covid-19
Non-pharmaceutical policy interventions, such as ‘stay-at-home’ orders, are associated with slower growth of Covid-19 cases. But they are not associated with significantly worse economic outcomes measured by job losses, which have been no higher in US states that implemented ‘stay-at-home’ during the Covid-19 pandemic than in states that did not have ‘stay-at-home’.
These are the central findings of a new study, which demonstrates that the Covid-19 pandemic is a common economic and public health shock. The trade-off between the economy and public health today depends strongly on what is happening elsewhere. This underscores the importance of coordinated economic and public health responses.
No trade-off between GDP and public health: evidence for South Korea and the UK
Government-imposed lockdowns may not present a clear trade-off between GDP and public health, even though their immediate effect is to reduce GDP and infections by forcing people to work from home. New research shows that a premature lifting of lockdown raises GDP temporarily, but infections rise over the next months to a level at which many people choose to work from home, where they are less productive, driven by the fear of infection. A longer lockdown eventually mitigates the GDP loss as well as flattens the infection curve.
The study shows if the UK had adopted South Korean policies, its GDP loss and infections would have been substantially smaller both in the short and the long run. This is not because South Korea implemented policies sooner, but because aggressive testing and tracking more effectively reduce infections and disrupt the economy less than a blanket lockdown.
The researchers also note that low-skill workers and the self-employed lose the most from the epidemic and also from the government policies. But a policy of issuing ‘visas’ to those who have antibodies will disproportionately benefit the low-skilled, by relieving them of the fear of infection and also by allowing them to get back to work.
Effectiveness of lockdowns varies across countries
Lockdown policies are less effective the lower the GDP per capita of a country and the greater the population density, according to a new study. The policies are more effective in countries with higher health expenditure and a bigger proportion of physicians in the population.
These findings can be explained by incentive driven behaviour and resource constraints. Higher population density, larger geographical areas and higher employment rates may require more resources to ensure compliance with lockdown policies. On the other hand, communities with access to better healthcare might be less likely to voluntary practice social distancing.
Targeted exit from lockdown in Italy would be more effective in reducing chances of a second wave and further economic damage
The effects of lockdown have been very severe in Italy, with a reduction in the value of potential output produced peaking at 69% for the construction and real estate and 63% for mechanics. As a result, GDP is expected to drop by around 10% in 2020. Most activities were reopened on 4 May, although within strict social distancing and health safety guidelines.
New research argues that a targeted exit from the lockdown should have been implemented instead. Priority could have been given to those activities with the greatest impact on the national economy. This targeted strategy, combined with an assessment of the inherent health risks of each activity, would have reduced the risks of a second wave of contagion, still reactivating gross output and jobs to a similar extent as the general reopening actually implemented.
The study finds that if the lockdown implemented up to 4 May had been kept for one year, it would have wiped out 52% of GDP. The proposed targeted reopening would reduce this negative impact by 70%.
Pessimistic expectations increase the negative effects of Covid-19 uncertainty in the Euro Area
In response to the same uncertainty shock, industrial production and inflation's peak decrease is around three and a half times larger during times of greater pessimism, as measured by survey data of expectations in Eurozone countries. In a new study, industrial production is predicted to experience a year-over-year peak loss of between 15.1% and 19% peaking between September and December 2020, and subsequently to recover with a rebound to pre-crisis levels between May and August 2021. The large impact is the result of an extreme shock to uncertainty occurring at a time of very negative expectations about the economic outlook.
Globalisation in the time of Covid-19: how economic effects depend on countries’ degree of integration in global production networks
The Covid-19 shock has a considerable impact on most economies in the world, especially when a share of the labour force is quarantined. What’s more, according to new analysis, global production linkages play a clear role in magnifying the effect of the production shock. The researchers also find that the economic effects of the Covid-19 shock are heterogeneous across sectors, regions and countries, depending on the geographical distribution of industries in each region and country and their degree of integration in the global production network.
Effects of Covid-19 and lockdowns on macroeconomic expectations and consumer spending in the United States
US households living in counties that went into lockdown earlier expect the unemployment rate over the next 12 months to be 13 percentage points higher and continue to expect higher unemployment at horizons of three to five years. They also expect lower future inflation, report higher uncertainty, expect lower mortgage rates for up to 10 years, and have moved out of foreign stocks into liquid forms of savings.
These are among the findings of a customised survey with more than 10,000 respondents. About 50% of survey participants report income and wealth losses due to the coronavirus, with the average losses being $5,293 and $33,482 respectively. Aggregate consumer spending dropped by 31 log percentage points, with the largest drops in travel and clothing.
While lockdowns have pronounced effects on local economic conditions and households’ expectations, they have little impact on approval ratings of Congress, the Fed or the Treasury, but they do lead to declines in approval of the president.
Sectoral impacts of Covid-19: US evidence
Two-thirds of the big drop in the growth rate of hours worked in April 2020 are attributable to supply, according to a new study. Most sectors of the US economy were subject to historically large negative labour supply and demand shocks in March and April 2020, but there is substantial heterogeneity in the size of these shocks across sectors. Leisure and Hospitality was particularly affected. There were positive labour demand shocks for sectors such as Retail Trade and Information in March 2020 that vanish in April 2020. The estimates of supply shocks are correlated with sectoral measures of telework.
Banks as lenders of first resort: Evidence from the Covid-19 crisis
In March 2020, banks faced the largest increase in liquidity demands ever observed. Firms drew funds on a massive scale from pre-existing credit lines and loan commitments in anticipation of cash flow disruptions triggered by lockdown measures. New research presents evidence showing that the increase in liquidity demands was concentrated at the largest banks, which serve the largest firms, and that pre-crisis financial conditions did not limit banks’ liquidity supply. Inflows of funds from both the Federal Reserve and from depositors, along with strong pre-shock capital, may explain why banks were able to accommodate these enormous liquidity demands.
International trade of essential goods during a pandemic
The Covid-19 crisis may change the dynamics of international trade, even within the exchange of ‘essential’ goods. A new study of the role of trade in mitigating or amplifying the impact of the pandemic finds that the overall effects depend crucially on countries' trade imbalances, with net importers emerging relatively worse off than net exporters. The welfare losses of net importers are lower in a world with high trade barriers, while the reverse is the case for net exporters. But once the pandemic arrives, net exporters of essential goods benefit from an increase in trade barriers, while net importers benefit from a decrease.
The high economic costs of Covid-19 containment measures: Cross-country evidence
Many countries around the world have implemented stringent containment measures to halt the spread of Covid-19 and limit the number of fatalities. But these measures entail large economic costs. New research quantifies these effects using daily data on real-time containment measures implemented by countries around the world. The results suggest that containment measures have had, on average, a very large impact on economic activity. Further, among different types of containment measures, while ‘stay-at-home’ requirements and workplace closures are the most effective in curbing both infections and deaths, they are also associated with the largest economic costs.
Impact of the pandemic on remittance-dependent households: Evidence from the Philippines
The Covid-19 outbreak is inevitably affecting remittance-dependent countries through economic downturns in the destination countries, as well as through restrictions on travel and the ability to send money home. A new study explores the potential impacts of the pandemic on the welfare of remittance-dependent households in the Philippines. The empirical model pins down the relationship between the macroeconomic performance of the destination countries, the amount of remittances, and the welfare of households. The projection shows that remittance inflow will decrease by 23-32%, with household spending per capita falling by 2.2-3.3% in one year as a result.
Mortality containment versus economics opening: Optimal policies
Optimising mortality containment versus economic re-opening sits at the heart of the challenge facing policy-makers today. New research describes the joint dynamics of infection and the economy and discusses the trade-off between production and fatalities, studying the conditions for the existence of the optimal policy response and its uniqueness. Uniqueness crucially depends on the marginal rate of substitution between the statistical value of a human life and GDP. This means that above a certain threshold, there is a unique optimal containment policy; below the threshold, it is optimal to abstain from any containment.
Aggregate demand and aggregate supply effects of Covid-19: Real-time analysis
Covid-19 has had a broad effect on both aggregate demand and supply. New research presents evidence from a study of output and price fluctuations during the pandemic. The authors attribute two thirds of the decline in GDP to a negative shock to demand. In contrast, approximately two thirds of the staggeringly large GDP decline resulted from a reduction in aggregate supply. Looking ahead, statistical analysis of these trends suggests a slow recovery (due to the persistent effects of the supply shock). But surveys suggest a faster rebound, with a recovery in aggregate supply leading the way.
Dangers of unified containment policies for big countries: Evidence from Brazil
Not taking account of the great heterogeneities between states in Brazil to coordinate containment policies may amplify both the severity of the economic recession & the number of infected & deaths resulting from the epidemic, according to new research. The study of state-level Covid-19 policy responses analyses how the main intrinsic differences of various states can affect the epidemic dynamics and its consequences.
The results suggest that state-level characteristics imply relevant differences in the general dynamics of the epidemic, in the optimal containment policies, in the effect of the adoption of these policies, and within the severity of the coming economic recessions. The authors conclude that in countries as large and diverse as Brazil, policies should be discriminated by state, and a single unified policy for the whole country may be misguided.
Effects of lockdown on employment and GDP: Cross-country evidence
Lockdown policies have had a substantial impact on levels of both GDP and employment in countries worldwide. A new study presents an estimation of the size of these effects, using individual- and sector-level data.
The results indicate that employment effects depend largely on the ability to work from home, which ranges from about half of total employment in rich countries to approximately 35% in poor countries.
In terms of GDP, the effects of lockdown policies depend on countries’ sectoral structure: losses in poor countries are attenuated by their higher value-added share in essential sectors, notably agriculture. Overall, a realistic lockdown policy implies GDP losses of 20-25% on an annualised basis.
Covid-19 in Europe and the United States: Areas with bigger outbreaks suffered more economic damage
Europe and the United States have both experienced high numbers of cases and deaths during the Covid-19 pandemic. New research focuses on each region at country and state level, noting that areas that experienced larger outbreaks also suffered larger economic losses. The authors also suggest that the variation in impacts is mostly captured by observed changes in people’s mobility, while, so far, there is no robust evidence supporting additional impact from the adoption of non-pharmaceutical interventions.
The deterioration of economic conditions preceded the introduction of these policies and a gradual recovery also started before formal re-opening, highlighting the importance of voluntary social distancing, communication and trust-building measures.
How many US jobs can be done at home?
About 37% of US jobs, accounting for 46% of overall wages, can plausibly be performed at home, according to research by Jonathan Dingel and Brent Neiman, which classifies the feasibility of working at home for all occupations.
Who can work from home in developing countries?
Research by Fernando Saltiel examines the feasibility of working from home in developing countries. Only 13% of workers in surveyed countries could work from home, yet this share ranges from 5.5% in Ghana to 23% in Yunnan, China. The feasibility of working from home is positively correlated with high-paying occupations. Educational attainment, formal employment status and household wealth are positively associated with the possibility of working from home, reflecting the vulnerability of various groups of workers.
Working from home across countries
How does the share of employment that can work from home changes with country income levels? A study by Markus Poschke and colleagues documents that in urban areas, this share is only about 20% in poor countries, compared with close to 40% in rich ones. This result is driven by self-employed workers: in poor countries, their share of employment is large and their occupational composition not conducive to work from home. At the level of the entire country, the share of employment that can work from home in poor countries compared with rich countries depends on farmers’ ability to work from home. This finding is due to the high agricultural employment share in poor countries.
Costs and benefits of home office during the pandemic: evidence from Germany
Working from home is very effective in reducing infection risk, according to research by Harald Fadinger and Jan Schymik: regions of Germany whose industry structure allows for a larger fraction of work to be done from home experienced much fewer Covid-19 cases and fatalities. Moreover, confinement is significantly more costly in terms of induced output loss in regions where the share of workers who can work from home is lower. The authors conclude that when phasing out confinement, home office should be maintained as long as possible, to allow those workers who cannot work from home to go back to work, while keeping infection risk minimal.
Working from home in Latin American and Caribbean countries
New research estimates the share of jobs that can be performed at home in 23 Latin American and Caribbean countries as well as workers' characteristics associated with such jobs. The share of individuals who are able to work from home varies from 7% in Guatemala to 16% in the Bahamas. The results confirm that some individuals are better positioned to cope with the current situation than others. This highlights the need to assist the most vulnerable workers in the context of the global pandemic.
Workplaces with robots have lower risks of contagion: Evidence from Italy
The rapid and dramatic diffusion of the Covid-19 epidemic in Italy was tackled by the government with social distancing measures and the suspension of all economic activities except ‘essential’ sectors. A lively policy debate on more refined criteria to choose which activities to allow and which to suspend in the future led the National Institute for Insurance against Accidents at Work to develop a measure of the risk of contagion in the workplace.
New research uses this novel source of information to study the cross-industry relationship between the estimated risk of contagion at work and the adoption of robots. The analysis provides evidence that industries employing more robots per worker in production tend to exhibit a lower risk of contagion due to Covid-19.
Jobs’ amenability to working from home: Evidence from skills surveys in 53 countries
The amenability of jobs to working from home increases with the level of economic development of the country, according to new research. This is driven by jobs in poor countries being more intensive in physical/manual tasks, using less information and communications technology, and having poorer internet connectivity at home.
Women, college graduates, and salaried and formal workers have jobs that are more amenable to working from home than the average worker. The opposite holds for workers in hotels and restaurants, construction, agriculture and commerce.
The study finds that the crisis may exacerbate inequities between and within countries. It also finds that occupations explain less than half of the variability in the working-from-home indexes within countries. This highlights the importance of using individual-level data to assess jobs’ amenability to working from home.
Car commuters more able to work from home but less able to socially distance in the workplace: Evidence from Ireland
Covid-19 has devastated the global economy, with indirect implications for the environment. As governments prioritised healthcare and implemented measures such as isolation, the closure of non-essential businesses, and social distancing, many workers lost their jobs, were furloughed, or started working from home.
A new study estimates the variability of people who engage in remote work and social distancing in Ireland. The results indicate that while those who commute by car have a relatively high potential for remote work, they are less likely to be able to engage in social distancing in their workplace. While this may be negative for employment prospects in the short run, this dynamic has the potential for positive environmental implications in the short and long run.
Feasibility of working from home: Evidence from Japan
The Japanese government’s policy response to the Covid-19 pandemic was to ask people to refrain from leaving their homes and to encourage working remotely (teleworking). New research examines the effect of the pandemic on the uptake of teleworking in a country that has the lowest current use among developed countries.
The results show that teleworking increased by approximately four percentage points from January to March 2020, driven by industries and occupations related to information. Teleworking is not, however, suited to face-to-face services and manual labour, which saw substantial declines in worker incomes.
Covid-19 risks: Evidence of the impact of marital status and the nature of work
The nature of different people’s work plays an important part in shaping the distribution of the health, labour income and unemployment risks associated with Covid-19 – but so too does people’s marital status. New research explores these two factors.
First, the employment status within a spousal relationship can have an important effect on the spread of virus: the distribution of the risks associated with Covid-19 affect married and non-married couples differently.
Second, whether or not an occupation is suitable for teleworking (working from home) is an important consideration. The discrepancy between teleworkable and non-teleworkable jobs affects labour income and unemployment risks. The results of the study imply that the current economic downturn may have long-run effects on the employment prospects and earnings of workers who had non-teleworkable jobs at the onset of the outbreak.
Working from home: How different sectors and regions have adapted
A renewed interest in the ability to work remotely has arisen due to Covid-19. A new study explores which regions, sectors, and industries are best equipped to move to remote working, and why this might be.
The results suggest that regions that faced automation produced job opportunities with a lower ability to work from home, while regions that faced new innovation demonstrate a clear pattern. Regions with low ability to work from home tend to employ lower-skilled immigrant populations and have suffered higher unemployment due to Covid-19.
Even as new technologies increase the ability of workers to work remotely, automating technologies tend to counteract this, raising the potential for the need to shutdown certain industrial centres during the pandemic.
The impact of Covid-19 on gender equality
Research by Michèle Tertilt and colleagues finds that the economic downturn caused by the Covid-19 outbreak has substantial implications for gender equality, during both the downturn and the subsequent recovery. Compared with ‘regular’ recessions, which affect men’s employment more severely than women’s employment, the employment drop related to social distancing measures has a large impact on sectors with high female employment shares. In addition, closures of schools and daycare centres have massively increased childcare needs, which has a particularly large impact on working mothers.
The effects of the crisis on working mothers are likely to be persistent, due to high returns to experience in the labour market. But beyond the immediate crisis, there are opposing forces that may ultimately promote gender equality in the labour market. First, businesses are rapidly adopting flexible work arrangements, which are likely to persist. Second, there are also many fathers who now have to take primary responsibility for childcare, which may erode social norms that currently lead to a lopsided distribution of the division of labour in house work and childcare.
Health versus wealth: distributional effects of controlling a pandemic
Many countries are shutting non-essential sectors of the economy to slow the spread of Covid-19: older individuals have most to gain from slowing virus diffusion while younger workers in sectors that are shuttered have the most to lose. A study by Andrew Glover and colleagues examines optimal mitigation policies of a utilitarian government that can redistribute resources across individuals, but where such redistribution is costly. They show that optimal redistribution and mitigation policies interact and reflect a compromise between the strongly diverging preferred policy paths across the subgroups of the population.
Disparities in exposure to Covid-19 across New York City neighbourhoods
New research finds that people’s occupations are crucial for explaining disparities in Covid-19 incidence across New York City neighbourhoods, with occupations with a high degree of human interaction being more likely to be exposed to the virus. Racial disparities still persist for Blacks and Hispanics compared with Whites, although their magnitudes are economically small.
While the magnitudes of effects of many occupations and demographics on exposure decrease over time, there is evidence of higher intra-household contagion as days go by. Moreover, there is selection with testing, whereby residents in worse conditions are more likely to get tested, with such selection decreasing over time as tests become more widely available.
Cultural and economic discrimination as Covid-19 hits the UK: new evidence
A new study finds that the pandemic has disproportionately affected the economically and socially vulnerable places across the UK along the lines of existing economic and cultural divides. The pandemic is likely to exacerbate existing real and perceived deprivation on the brink of an expected economic shock at the end of the Brexit implementation period. If health deprivation is compounded by Brexit-related economic blows, greater protests are likely to be the result.
Short-term effects of Covid-19 on poverty in Africa
The number of poor people in Africa would increase by between 59 and 200 million due to contractions in consumption as a result of Covid-19 pandemic. New research presents three scenarios, in all of which West Africa and East Africa are the most affected by contractions in consumption, while North Africa is the least affected among the five regions in Africa.
The findings suggest that the Covid-19 pandemic is a serious threat to achievement of the Sustainable Development Goals. Governments and international organisations should increase efforts to support economic activity in all countries.
Who can live without two months of income? Evidence for Europe
Looking at 342 million residents in 21 EU countries, a new study estimates that 99 million individuals live in households that cannot cover two months of the most basic expenses – food at home, utilities and rent/mortgage on their single main residence – only from their savings in bank accounts. Without privately earned income but with (pre-Covid-19) pension income and public transfers, 57 million have savings for less than two months.
Government support in the form of employment protection schemes and beyond is thus fundamental to ensure livelihood during the pandemic, yet many individuals would remain vulnerable if ensured 50% of their gross privately earned income. Mortgage and rent suspension can decrease in half the number of individuals at risk.
The study finds stark differences between countries and that individuals born outside of the EU are particularly vulnerable. Those dependent on their income will be forced to resume work earlier and take higher health risks.
Gender equality in work and Covid-19 deaths
On average, women comprise a smaller share of deaths from Covid-19. But variation in the share of Covid-19 deaths for women across countries and US states suggests that biological factors cannot fully account for this gender difference.
A new study hypothesises that women’s participation in the workforce is related to women’s share of Covid-19 deaths. It shows that the percentage of the full-time workforce comprised of women is positively related to the percentage of female Covid-19 deaths across countries. What’s more, the percentage of the full-time workforce comprised of women is positively related to the incidence of various diseases associated with a more severe impact of Covid-19 and the percentage of medical doctors and nurses who are women.
These results suggest that in countries where women participate more fully in the workforce, women may be more susceptible to Covid-19 due to increased exposure to the virus and a higher risk of developing co-morbidities.
Covid-19 is not a great equaliser
Coronavirus has been portrayed as the ‘great equaliser’: no one seems immune to the virus and to the economic consequences of the lockdown measures imposed to contain its diffusion. But data from two real-time surveys designed to study the early impact on the labour market of the lockdown in Italy show that Covid-19 was not a ‘great economic equaliser’.
Quite the contrary: low-educated workers, blue collars and low-income service workers were more likely to have stopped working both three weeks and six weeks after the lockdown. Low-educated workers were less likely to work from home. Blue collars worked more from their regular workplace, but not from home. Low-income service workers were instead less likely to work from the regular workplace. Overall, low-income individuals faced worse labour market outcomes and suffered higher psychological costs.
Socio-economic determinants of Covid-19 infections and mortality: Evidence from England and Wales
Areas in the UK that have larger households, worse levels of self-reported health and a larger fraction of people using public transport have more Covid-19 infections per 100,000 people. For mortality, household size and use of public transport are less important, but areas with an older population, a larger share of black or Asian population and worse levels of self-reported health have more Covid-19 deaths per 100,000 people.
These are the findings of a new study examining how the number of confirmed Covid-19 cases and the number of deaths with Covid-19 per 100,000 people is related to the socio-economic characteristics of local areas in England and Wales. The study finds a clear relationship with age, ethnicity and self-reported health.
To prevent the spread of infection and reduce mortality, policy-makers should introduce measures to improve housing conditions and improve the health of the population. As many countries now begin to relax lockdown measures, they should also pay particular attention to reducing the risk of infection in public transport.
Rising wage inequality and poverty effects of lockdown and social distancing in Europe
The social distancing measures taken to contain the spread of Covid-19 impose economic costs that go beyond the contraction of GDP: since different occupations are not equally affected, this supply shock may have distributional implications. New research evaluates the potential impact of enforced social distancing on wage inequality and poverty across Europe. The results imply striking differential wage losses across the distribution, with both poverty and wage inequality rising in all European countries. These changes increase with the duration of the lockdown and vary with the country under consideration.
Distributional and budgetary consequences of the UK lockdown: Evidence that the crisis response helps the poor
The economic effects of the Covid-19 crisis are set to be a major budgetary cost for the UK government. New research suggests that under conservative assumptions about the exit strategy and recovery phase, the rescue package will increase the cost of the crisis for the public budget by an additional £26 billion, totalling the cost at over £60 billion. But due to the increased generosity of Universal Credit, the policy response should be able to contain the reduction in average household disposable income to within one percentage point and could even reduce the UK poverty rate by 1.1 percentage points.
Poverty and the prevalence of Coronavirus infections and deaths: Evidence from US counties
The United States is one of the worst affected countries by the Covid-19 crisis. A new study documents the rate of infections and deaths at county level, focusing on the effect of poverty on the dynamics of the virus.
The results suggest that the U-shaped relationship prevails for counties with high population density. In counties with low population density, poorer counties exhibit much higher numbers of coronavirus cases, both in infections and deaths. What’s more, the average numbers of cases per week in richer counties then quickly converges to the number reported in middle-income counties, while the poorer counties show a much slower decrease in coronavirus cases.
The mental health strain of Covid-19: Evidence of different effects by gender in the UK
Covid-19 and the lockdown measures introduced in response have had a substantial impact on people’s mental wellbeing. New research that traces the effects in the UK finds a substantial decline for women in particular.
The results of the study suggest that differences in family and caring responsibilities can explain part of the gender gap, but the bulk is explained by social factors such as loneliness. Other factors such as financial difficulties or age are similarly distributed across genders, playing little role in explaining the gender gap overall.
Covid-19 in less economically developed countries: A new epicentre?
The Covid-19 pandemic is fast spreading to relatively less developed regions including Latin America, South Asia, and the African continent. New research examines the impact of socio-economic conditions on health outcomes by Covid-19 as well as the moderating role of government emergency measures.
The results suggest that socio-economic circumstances have strong negative association with Covid-19 confirmed cases and deaths. Quantitatively, a one standard deviation improvement in socio-economic conditions lowers confirmed cases and deaths per million people by one half. In addition, stringent social distancing measures and generous income support programmes help to lower cases and deaths, particularly in countries with poor socio-economic conditions.
Flight to safety: 2020 Democratic primary election results and Covid-19
Covid-19 resulted in diminished support for Bernie Sanders compared with his support in the 2016 election, which is an indication of Covid-induced anxiety altering vote choice, according to research by James Bisbee and Dan Honig. They test alternative mechanisms, such as differential changes in turnout by age groups more and less supportive of Sanders, selection effects in which areas less supportive of Sanders were more exposed and the coincident timing of the outbreak with the Democratic Party rallying around Joe Biden. They find little support for these alternative pathways, bolstering their claim that the results are consistent with a political ‘flight to safety’. The findings suggest an as-yet underappreciated preference for ‘safe’ candidates in times of social anxiety.
Political beliefs affect compliance with Covid-19 social distancing orders
Political beliefs present a significant limitation to the effectiveness of state-level social distancing orders, according to research by Marcus Painter and Tian Qiu. They find that residents in Republican counties are less likely to stay at home completely after a state order has been implemented relative to those in Democratic counties. In addition, Democrats are less likely to respond to a state-level order when it is issued by a Republican governor relative to one issued by a Democratic governor. The authors conclude that bipartisan support is essential to maximise the effectiveness of social distancing orders.
The Covid-19 pandemic: US government versus community action
Using data from 40 million mobile devices, a study by Adam Brzezinski and colleagues finds that a lockdown increases the percentage of people who stay at home by 8% across US counties. Grouping states with similar outbreak trajectories together, they show that time spent at home can increase by as much as 39%. But counties where people have less distrust in science, are more highly educated or have higher incomes see a substantially higher uptake of voluntary physical distancing. This suggests that the targeted promotion of distancing among less responsive groups may be as effective as across-the-board lockdowns, while also being less damaging to the economy.
Lucas Argentieri Mariani, Jessica Gagete‑Miranda and Paula Rettl | Issue 12: May 01
Citizens’ compliance with measures enacted by health authorities can have an important effect on the state of public health, particularly during epidemics. New research looks at this issue in the context of Brazil, where the president Jair Bolsonaro disrespected the recommendations and measures implemented by health authorities during a country-wide day of pro-government demonstrations amid the Covid-19 outbreak.
The results show that Bolsonaro’s behaviour increased the pace of Covid-19 diffusion. In particular, after the demonstrations, the daily number of new cases was 19% higher in cities with a concentration of Bolsonaro voters compared with cities with a concentration of opposition voters. The quicker spread of Covid-19 was not only due to people coming together to demonstrate, but also due to the changed behaviour of Bolsonaro supporters regarding social distancing measures. Citizens’ compliance with social distancing decreased in pro-Bolsonaro cities after the demonstrations.
Shutdown policies and worldwide conflict
New research provides real-time evidence on the impact of Covid-19 restrictions policies on conflicts globally. The authors combine daily information on conflict events and government policy responses to limit the spread of coronavirus to study how conflict levels vary following shutdown and lockdown policies.
The results show that imposing a nationwide shutdown reduces the likelihood of daily conflict by around 9 percentage points. The reduction is driven by a drop in the incidence of battles, protests and violence against civilians. The decline is significant for conflicts involving political militias, protesters and civilians.
The study also finds significant cross-country heterogeneity in the effect of restriction policies on conflict: no conflict reduction is observed in low-income countries and societies more fractionalised along ethnic or religious lines.
Christian Moser and Pierre Yared | Issue 17: May 13
Governments would like to commit to limit the extent of future lockdown in order to support more optimistic investor expectations in the present. But as new analysis shows, such a commitment is not credible since investment decisions are sunk when the government makes the lockdown decision in the future. The commitment problem is more severe if lockdown is sufficiently effective at limiting disease spread or if the size of the susceptible population is sufficiently large. Credible rules that limit a government’s ability to lock down the economy in the future can improve the efficiency of lockdown policy.
Carl Benedikt Frey, Chinchih Chen and Giorgio Presidente | Issue 18: May 13
A widely held belief is that autocratic governments have been more effective in reducing the movement of people to curb the spread of Covid-19. Using the Oxford Covid-19 Government Response Tracker and a real-time dataset with daily information on travel and movement across 111 countries, new research finds that autocratic regimes imposed more stringent lockdowns and relied more on contact tracing. But there is no evidence that they were more effective in reducing travel.
Indeed, there is evidence to the contrary: countries with democratically accountable governments introduced less stringent lockdowns but were approximately 20% more effective in reducing geographical mobility at the same level of policy stringency.
In addition, the study shows, for the same policy stringency, countries with more obedient and collectivist cultural traits experienced larger declines in geographical mobility relative to their more individualistic counterparts. In terms of reducing mobility, collectivist and democratic countries have implemented relatively effective responses to Covid-19.
Supriya Garikipati and Uma Kambhampati | Issue 26: June 05
Since the start of the pandemic, the relationship between national female leaders and their effectiveness in handling the Covid-19 crisis has received a lot of media attention. New research scrutinises this association more systematically, using a constructed dataset for 194 countries with a variety of socio-demographic variables. The analysis suggests that findings Covid-19 outcomes are systematically better in countries led by women and, to some extent, this may be explained by the proactive and coordinated policy responses adopted by them.
Political polarisation in the age of Covid-19: US evidence
While the Covid-19 pandemic has led to a rapid increase in unemployment across the United States, some states have fared better than others at minimising the economic damage and suppressing the disease burden. New research examines the political factors behind these outcomes at the individual and institutional levels.
The results suggest that while the more extreme policies have had negative effects on either economic activity or public health, middle-of-the-road policies (such as masks) have been more effective at curbing infections without significant economic damage. Crucially, the effectiveness of these policies is mediated by political affiliation: partisanship can have persistent effects on economic activity and healthcare, moving individuals and institutions away from optimal policy.
The unprecedented stock market reaction to Covid-19
No previous infectious disease outbreak, including the Spanish flu, has affected the stock market as powerfully as the Covid-19 pandemic. A study by Nicholas Bloom and colleagues uses text-based methods to develop this point with respect to large daily stock market moves back to 1900 and with respect to overall stock market volatility back to 1985. They argue that policy responses to the Covid-19 pandemic provide the most compelling explanation for its unprecedented stock market impact.
Aggregate and firm-level stock returns during pandemics, in real time
Research by Laura Alfaro and colleagues makes use of unexpected changes in the trajectory of pandemics to quantify their effects on aggregate and firm-level stock returns. They find that an unanticipated doubling of predicted infections during the Covid-19 and SARS outbreaks forecasts aggregate equity market value declines of 4% to 11%. Firm returns are sensitive to this information even after accounting for their co-movement with the market and vary widely both within and across sectors. These results imply a decline in returns’ reaction to new infections as the trajectory of the pandemic becomes clearer.
Pandemics and the financial markets
A study by Jordan Schoenfeld uses the Covid-19 pandemic as a natural experiment for testing how large-scale pandemics affect the financial markets. It finds that managers systematically underestimated their exposure to pandemics in their SEC-mandated risk factors, and the vast majority of firms decreased in value at the pandemic’s onset. The pandemic triggered unprecedented changes in US employment levels and the values of bonds, commodities and currencies. These types of findings suggest that pandemics are systemically important to the financial markets.
The risk of being a fallen angel and the corporate ‘dash for cash’
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. They show that 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.
Rui Albuquerque, Yrjo Koskinen, Shuai Yang and Chendi Zhan | Issue 11: April 29
The pandemic and the lockdown brought about a massive slowdown of the economy and an unparalleled stock market crash. A new study exploring how firms with high Environmental and Social (ES) ratings fare during the first quarter of 2020 compared with other firms shows that shares with high ES ratings have significantly higher returns, lower return volatilities and higher trading volumes than others. Firms with high ES ratings and high advertising expenditures perform especially well during the crash. This research highlights the importance of ES policies in making firms more resilient during a time of crisis.
Covid-19 market volatility sheds light on ‘dark pools’ of financial trading
‘Dark pools’ – trading venues that do not offer pre-trade transparency – are often suspected of causing difficulties with price discovery and of adversely affecting market quality. A new study of the effects of Covid-19-induced volatility on trading in dark pools finds that increased volatility is linked with an economically significant shift of market share from dark pools to lit exchanges.
When the markets get Covid: contagion, viruses and information diffusion
New research using both contagion data and social media activity about Covid-19 confirms that the market price of contagion risk is very significant. The authors quantify the exposure of major financial markets to news shocks about global contagion risk accounting for local epidemic conditions. They construct a novel data set for a wide range of countries comprising announcements related to Covid19, and high-frequency data on epidemic news diffused through Twitter. Across several classes of financial assets, they provide novel empirical evidence about financial dynamics around epidemic announcements, at a daily frequency, and at an intra-daily frequency.
Exposure to the Covid-19 stock market crash and its effect on household expectations
The initial stock market collapse that followed the outbreak of Covid-19 may have affected household expectations and planned behaviour. New research provides correlational and experimental evidence to show that beliefs about the duration of the stock market recovery shape households' expectations about their own wealth, their planned investment decisions, and overall labour market activity. These findings also shed light on the implications of household exposure to stock market crashes for expectation formation, with a particular focus on the context of the pandemic itself.
Corporate bond liquidity during the Covid-19 crisis
Since the onset of the pandemic, the liquidity conditions in the corporate bond market have faced multiple changes. New research argues that as the crisis unfolded, a portion of transactions were initially migrated to a slower, less costly process wherein dealers arranged for trades directly between customers without using their own balance sheet space. But interventions by the Federal Reserve appear to have relaxed balance sheet constraints. By allowing dealers to unload certain assets from their balance sheets, the Fed’s interventions may have helped dealers to better intermediate a wide variety of assets, including those not directly targeted.
The stock market is not the economy: Insights from the Covid-19 crisis
During the pandemic and the related economic fallout, the response of the stock markets has raised concerns as well as questions. New research explores the surprising trends. There is some evidence that shareholders have favoured the less vulnerable firms, and that credit facilities and government guarantees, lower policy interest rates, and lockdown measures mitigated the decline in stock prices. But fundamentals only explain a small part of the stock market variations at the country level. Overall, it is hard to deny that the link between stock prices and fundamentals have been loose at best.
Safe haven assets: New evidence on gold investment during Covid-19
The role of safe haven assets in times of crisis can be evaluated through a comparison of the Covid-19 pandemic and the 2008/09 global financial crisis. New research draws on data from the ten largest economies in the world, showing that the traditional safe haven asset – gold – may not offer the same level of security as it did before.
In comparison, the results of the study suggest that US Treasuries and the Swiss franc have maintained their position as strong safe havens during both crises. In terms of the rise of cryptocurrencies, Bitcoin does not serve as a safe haven during Covid-19. But the largest stablecoin, Tether, serves as a strong safe haven in this case. In short, during a pandemic, investors prefer liquid and stable assets, rather than gold.
Fiscal policy during a pandemic: US evidence
Unemployment insurance benefits are the most effective tool to stabilise income for borrowers, who are hit the hardest by the pandemic, while savers favour unconditional transfers. Liquidity assistance programmes are effective if the policy objective is to stabilise employment in the affected sector. These are among the findings of Miguel Faria-e-Castro in a study analysing different types of US fiscal policies: government purchases, income tax cuts, unemployment insurance benefits, unconditional transfers and liquidity assistance to service firms.
Central bank swap lines during the Covid-19 pandemic
Facing visible strain in dollar funding markets during the Covid-19 pandemic, the Fed lowered the rate on the swap lines it had with five other central banks and opened new ones in nine other currencies. Some of these were used, some not. Research by Saleem Bahaj and Ricardo Reis uses this variation to show the impact of the swap lines on CIP deviations across currencies.
The Covid-19 economic stimulus index
Research by Ceyhun Elgin and colleagues conducts a comprehensive review of different economic policy measures adopted by 166 countries as a response to the pandemic and creates a large database including fiscal, monetary and exchange rate measures. The Covid-19 Economic Stimulus Index combines all adopted policy measures and makes it possible to study cross-country differences in policies. The median age of the population, the number of hospital beds per-capita, GDP per capita and the number of total cases are all significantly associated with the extent of countries’ economic policy responses.
Covid-19 helicopter money: economics and politics
A study by Donato Masciandaro discusses how to design a policy mix in which a fiscal backstop based on cash transfers is financed through a form of monetisation that produces losses in the central bank’s balance sheet, without a permanent increase in the money base. If an independent central bank acts as a long-sighted policymaker, an optimal helicopter monetary policy can be identified. At the same time, if the government in charge is made up of career-concerned politicians and citizens are heterogeneous, then the policy mix will produce distributional effects and conflicts between politicians and central bankers will be likely. Political pressures will arise and the helicopter money option will be unlikely.
Sovereign credit ratings affect governments’ ability to use fiscal stimulus to counter the economic fallout from Covid-19
The pandemic has rattled the global economy and required governments to undertake massive fiscal stimulus to prevent the economic fallout of social distancing policies. A new study compares the fiscal response of governments around the world and its main determinants. The authors find sovereign credit ratings as one of the most critical factors determining their choices.
First, the countries with one level worse rating announced 0.3 percentage points lower fiscal stimulus (as a percentage of their GDP). Second, these countries also delayed their fiscal stimulus by an average of 1.7 days. In the 22 most vulnerable countries, based on their rating and stringency, a stimulus equal to 1% of their GDP adds up to $87 billion. To fight the pandemic, long-term loans from multilateral institutions can help these stimulus-starved economies.
Economic policy incentives to preserve lives and livelihoods
Much has been written about the stark choice facing governments in the wake of Covid-19: should they preserve lives or livelihoods? Less has been said about the equally stark choices facing ordinary citizens, yet the decisions they make every day – whether or not to comply with lockdown and social distancing measures, for example – are as important as those made by their governments. A new study concludes that if economic policy incentives are responsible for even a fraction of compliance rates, then policy has a crucial role to play in the fight against Covid-19.
Assessing the impact of the US Paycheck Protection Program
New research provides an initial assessment of the US Paycheck Protection Program by studying the 273 public firms that received a total of $929 million in loans over the period 7-27 April 2020. Despite receiving significant media coverage, these firms comprise 0.3% of the funds disbursed.
Using guidelines specified by the US Small Business Administration, the study documents that about half of public firms were eligible to apply, of which 13% were eventual borrowers. Within the set of eligible firms, public firm borrowers tended to be smaller, have more employees, have fewer investment opportunities, have pre-existing debt balances and be located in a county with Covid-19 cases. Implementing additional eligibility requirements may help target funds towards the most constrained firm.
Can the Covid bailouts save the economy?
The Covid-19 crisis has led to a sharp deterioration in firm and bank balance sheets to which governments have responded with a massive intervention in corporate credit markets. New research finds that the interventions should be highly effective at preventing a much deeper crisis by reducing corporate bankruptcies by about half, and short-circuiting the doom loop between corporate and financial sector fragility. But the fiscal costs are high and will lead to rising interest rates on government debt. A more effective intervention with lower fiscal cost is available.
Policies to support firms in a lockdown: A pecking order
The Covid-19 crisis represents a broad range of banking and liquidity issues that require government intervention. New research presents a ‘pecking order’ of policy tools, with the aim of maximising output as a function of the government's budget. For low budget, a reduction in capital requirements is optimal and is fully transmitted to firms through increases in banks' leverage. For medium budget, the capital requirement reduction becomes slack and needs be combined with transfers to firms or loan guarantees. For high budget, transfers are strictly necessary.
Preserving job matches during the pandemic: Firm-level evidence on the role of government aid
Covid-19 has had a variety of impacts on firms of varying sizes across Denmark. New research presents survey data, tracking the impacts on firms’ aid take-up, layoffs and furlough decisions. The results indicate a steep decline in revenue and a strong reported effect of labour aid take-up on lower job separations. Relative to a normal year, a quarter more firms have experienced revenue declines exceeding 35%. Further, it is possible to characterise the firms that took up aid and the type of aid package they chose ¬– labour-based aid, fixed cost support or fiscal-based tax delays.
The challenge of protecting informal households during the pandemic: Evidence from Latin America
Latin American countries introduced rapid emergency measures to sustain the income of informal workers and their families during shelter-in-place orders to contain Covid-19. But the effectiveness of these measures has been limited. New research presents evidence suggesting that the coverage and replacement rates of usual labour income are high among the first quintile of the population, but fairly low in the second and third quintiles. This implies that if governments plan to extend lockdown measures or to reintroduce them in the future, they must consider broader income transfers for the lower-middle class next time around.
Financial market runs and interventions: Evidence from US money market funds during the pandemic
Financial markets have experienced extreme behaviour from the onset of the Covid-19 crisis. A new study focuses on the role of the money market fund (MMF) reform, where liquidity restrictions on investors such as redemption gates and liquidity fees are supposed to improve financial stability during a crisis.
The authors find that these policy mechanisms may have exacerbated the run on prime MMFs during the pandemic. Severe outflows from prime MMFs amid frozen short-term funding markets forced the Federal Reserve to intervene. By providing ‘liquidity of last resort’, the intervention successfully stopped the run on prime MMFs, and gradually stabilised conditions in short-term funding markets.
Bringing back the jobs lost to Covid-19: Evidence on the potential impact of fiscal policy instruments
Covid-19-induced job losses have occurred predominantly in industries with intensive worker-client interaction as well as in pink-collar (mainly women) and blue-collar occupations. A new study focuses on the ability of fiscal policy to stabilise employment by occupation and industry during the crisis.
The authors use a multi-sector, multi-occupation macroeconomic model to investigate different fiscal policy instruments that help the economy recover faster. The results suggest that fiscal stimuli foster job growth for hard-hit pink-collar workers, whereas stimulating blue-collar job creation is more challenging. What’s more, a cut in labour taxes performs best in stabilising total employment and the employment composition.
Optimal unemployment benefits in the pandemic
The impact of Covid-19 on job losses calls for a different response in terms of unemployment benefits. A new study addresses this change, computing the optimal unemployment insurance response to the crisis. The authors compare the optimal policy to the provisions under the US CARES Act, which substantially expanded unemployment insurance.
The results show that it is optimal first to raise unemployment benefits but then to begin lowering them as the economy starts to reopen – despite unemployment remaining high. An extension of unemployment insurance could hamper economic recovery and reduce welfare, although an extension combined with a re-employment bonus could combat this effect.
Business disruptions from social distancing: US evidence
Around 49 million workers in the United States work in occupations that rely heavily on face-to-face communication or require close physical proximity to other workers. Research by Miklós Koren and Rita Peto suggests that when businesses are forced to reduce worker contacts by half, they need a 12% wage subsidy to compensate for the disruption in communication. Retail, hotels and restaurants, arts and entertainment, and schools are the most affected sectors. These results can help target fiscal assistance to businesses that are most disrupted by social distancing.
Sectoral effects of social distancing: evidence for France
A study of France by Jean-Noël Barrot and colleagues estimates that six weeks of social distancing brings GDP down by 5.6%. Apart from sectors directly affected by social distancing measures, those whose value-added decreases the most are upstream sectors, those sectors most distant from final demand.
US supply and demand shocks in the Covid-19 pandemic: industries and occupations
A study by Doyne Farmer and colleagues provides quantitative predictions of first-order supply and demand shocks for the US economy associated with the pandemic at the level of individual occupations and industries. At the industry level, sectors such as transport are likely to have output constrained by demand shocks, while sectors relating to manufacturing, mining and services are more likely to be constrained by supply shocks. Entertainment, restaurants and tourism face large supply and demand shocks. At the occupation level, high-wage occupations are relatively immune from adverse supply- and demand-side shocks, while low-wage occupations are much more vulnerable.
Scarring body and mind: the long-term belief effects of Covid-19
The largest economic cost of the pandemic could arise if it changed behaviour long after the immediate health crisis is resolved. A common explanation for such a long-lived effect is the scarring of beliefs. Research by Julian Kozlowski and colleagues shows how to quantify the extent of such belief changes and determine their impact on future economic outcomes. They find that the long-run effect of the Covid crisis depends crucially on whether bankruptcies and changes in habit make existing capital obsolete. A policy that avoided most permanent separation of workers from capital could generate a much larger benefit than originally thought, which could easily be 180% of annual GDP in present value.
Covid-19 boosts global adoption of digital finance and fintech apps
The spread of Covid-19 and related government lockdowns have led to a 24-32% increase in the relative rate of daily downloads of finance mobile applications, according to a new study, which draws on mobile application data from 74 countries to document the effects of the pandemic on the adoption of digital finance and fintech. In absolute terms, this equates to an average daily increase of roughly 5.2 to 6.3 million application downloads and an aggregate increase of about 316 million app downloads since the pandemic’s outbreak, taking account of prior trends.
Start-ups and employment in the pandemic: a calculator
Start-ups are being hit hard by the pandemic and the lockdown. Introducing a ‘start-up calculator’ that allows anyone to compute the aggregate employment losses under various economic scenarios, a new study explores the effects of a decline in start-up activity on aggregate employment. The results indicate that employment losses can be substantial and last for more than a decade, even when the assumed slump in start-up activity is only short-lived.
Disaster resilience and asset prices
Widespread social distancing measures have had a significant effect on firms’ operations and future prospects. New research investigates how these effects are reflected within asset markets, with the aim of tracing asset price resilience for different groups. It seems that firms that are more resilient to social distancing significantly outperformed those with lower resilience during the outbreak, even after controlling for the standard risk factors. Looking forward, stocks of more pandemic-resilient firms are expected to yield significantly lower returns than less resilient ones, suggesting that markets may soon price exposure to a new risk factor: pandemic risk.
The impact of Covid-19 on commercial real estate prices: Asset-level evidence
New research examines the impact of the Covid-19 pandemic on commercial real estate (CRE) prices. The authors construct a novel measure of listed CRE portfolios’ exposure to the growth in Covid-19 cases using a large, granular sample of firms’ individual commercial property holdings. They document a negative relationship between this geographically weighted case growth and risk-adjusted returns. But there is substantial variation across property types: the retail and hospitality sectors react the most negatively while technology sector reacts positively to the exposure of their portfolios to growth in Covid-19 cases.
The impact of Covid-19 on the US childcare market: Evidence from stay-at-home orders
New research quantifies the short-run impact of stay-at-home orders (SAHOs) on search behaviour and labour demand for childcare. The study finds that online job postings for early care and education teachers declined by 13% after enactment. This effect is driven exclusively by private-sector services. Indeed, hiring by public programs like Head Start and pre-kindergarten were not influenced by SAHOs. In addition, there is little evidence that childcare search behaviour among households has been altered. Because forced supply-side changes appear to be at play, the results suggest that households may not be well-equipped to insure against the rapid transition to the production of child care.
The CoviD-19 shock and equity shortfall: Firm-level evidence from Italy
Covid-19 and the subsequent lockdown measures have led to a drastic drop in profits and an equity shortfall across thousands of firms. New research takes evidence from Italy, demonstrating the numerical impact of the three-month lockdown measures. The authors find that small and medium-sized enterprises (SMEs) are affected disproportionately, with 18.1% of small firms, and 14.3% of medium-sized ones becoming distressed, against 6.4% of large firms. Further, the equity shortfall and the extent of distress are concentrated in the Manufacturing and Wholesale Trading sectors and in the North of Italy, further suggesting that the impacts are varied and non-uniform.
The early impact of Covid-19 on local commerce: Changes in spend across US neighbourhoods and online
Individual transaction data can provide a picture of the effects of Covid-19 on consumer behaviour. New research takes data from 16 US cities and explores neighbourhood-level effects and shifts between offline and online purchasing channels. Overall spending declines were uniform across neighbourhoods of differing median household income, though lower-income neighbourhoods experienced the highest proportion of extreme negative declines. Further, compared to their counterparts in higher-income neighbourhoods, consumers in low-income neighbourhoods were not more likely to use shops that are closer to where they live since the onset of the pandemic, again suggesting variability in consumer patterns.
Demand stimulus needed to buffer the crisis: Evidence from Germany
The impact of Covid-19 on supply and demand can be measured via a study of planned price changes. A new study presents evidence from Germany, documenting firm-level data to infer the importance of supply and demand forces.
The results indicate that supply and demand forces co-exist, but demand deficiencies dominate in the short run. Quarter-on-quarter producer price inflation is predicted to decline by as much as 1.5 percentage points during August 2020. These results imply a role for a demand stimulus policy to buffer the Covid-19 economic crisis.
The effect of lockdown measures on business: US state-level evidence
Although lockdown measures were necessary to contain the spread of the virus, they have come at a cost for business. New research offers a comparison of firms’ performances across various US states that experienced different levels of lockdown at different times.
The results indicate that returns on firms located in locked down states are higher following lockdown. This effect is only significant when the firm’s county has a high number of infections. It is larger for firms within essential sectors, and in states with Democrats in political power.
This suggests that while lockdown extension announcements are associated with negative market reactions, the reaction is still positive when the number of infections remains high. This suggests that, when effective, the market perceives non-pharmaceutical interventions to be beneficial for businesses overall.
Corporate culture during Covid-19: An intangible asset in the face of uncertainty
The private sector has been hit particularly hard by the Covid-19 crisis, with lockdown measures interrupting their operations at virtually every level. New research suggests that firms with a strong corporate culture do better in the middle of a pandemic than their peers without a strong culture. What’s more, firms with a strong culture are more likely to emphasise community engagement and adopt digital technology, without necessarily increasing aggressive cost-cutting measures.
The results of the study imply that firms with a strong culture have higher sales per employee (and lower cost of goods sold per employee) during the first quarter of 2020, supporting the notion that corporate culture is an intangible asset designed to meet unforeseen contingencies as they arise.
Protecting firms’ liquidity during Covid-19: Evidence from Italy
One of the most urgent issues facing policy-makers is ensuring that firms do not run out of cash as a result of Covid-19. New research presents evidence from Italy, suggesting that at the peak, around 200,000 companies employing 3.3 million workers could become illiquid. Further, the progression is fast, with 180,000 firms turning illiquid by April 2020.
The authors evaluate the Italian government’s liquidity decree, which provides guarantees for bank loans. Assuming that firms have access to all the facilities, almost all firms are able to cover their liquidity shortfalls. Even in the case of a second wave after the summer, which would increase the liquidity shortfall substantially, firms' liquidity needs are manageable under the current schemes of liquidity provision.
Covid-19 uncertainty: How policy announcements shape the mood of businesses in Germany
Covid-19 hit firms by surprise, creating a widespread mood of business uncertainty. New research focuses on evidence from firms in Germany. The results imply that the business outlook declined, and business uncertainty increased only when the spread of the Covid-19 pandemic led to domestic policy changes. For example, the announcement of nation-wide school closures on 13 March 2020 caused by far the largest change in business perceptions.
In contrast, business perceptions hardly reacted to any other potential source of information ¬– firms did not learn from foreign policy measures, even if they relied on inputs from China or Italy. Furthermore, the local, county-level spread of the virus affected expectations and uncertainty, albeit to a much lesser extent than the domestic policy changes.
Mitigating the work-safety trade-off: evidence from Italy
How many jobs can be carried out without putting workers at risk of contracting Covid-19? How many of these jobs can be activated as soon as the most severe restrictions to mobility are lifted? And to what extent do these jobs belong to the chain involved in the war against Covid-19? Tito Boeri and colleagues provide preliminary answers to these questions drawing on the case of Italy, the first Western country to be hit by the pandemic.
Risk-taking during a global crisis: evidence from Wuhan
A repeated survey of risk-taking behaviour among a panel of people in Wuhan, China – ground zero of the Coronavirus pandemic – before and after the outbreak began finds that subjects’ allocations of wealth to hypothetical risky investments decrease monotonically based on the strength of their exposure to the pandemic. But subjects uniformly report substantially lower general preferences for risk regardless of their exposure. The study by Di Bu and colleagues finds that higher levels of exposure lead subjects to reduce beliefs in their own luck and sense of control and in turn, form more pessimistic beliefs about the economy and social conditions. The results suggest that more closely held formative experiences have large, negative and acute effects on economic preferences during a crisis.
Consumer responses to the Covid-19 crisis: evidence from bank account transaction data in Denmark
Analysis of transaction-level customer data from the largest bank in Denmark shows that aggregate card spending has dropped sharply by around 25% following the shutdown. Asger Lau Andersen and colleagues find that the drop is mostly concentrated on goods and services whose supply is directly restricted by the shutdown, suggesting a limited role for spillovers to non-restricted sectors through demand in the short term. The spending drop is somewhat larger for individuals more exposed to the economic and health risks introduced by the Covid-19 crisis; but pre-crisis spending shares in the restricted sectors is a much stronger correlate of spending responses.
Welfare resilience in the immediate aftermath of the Covid-19 outbreak in Italy
Research by Francesco Figari and Carlo Fiorio analyses the extent to which the Italian welfare system provides monetary compensation for those who lost their earnings due to the lockdown imposed by the government to contain the pandemic in March 2020. The results provide timely evidence on the differing degrees of relative and absolute resilience of the household incomes of the individuals affected by the lockdown. These arise from the variations in the protection offered by the tax-benefit system, coupled with personal and household circumstances of the individuals at risk of income loss.
Consumption responses to the US CARES Act
If the US lockdown is short-lived, the combination of expanded unemployment insurance benefits and stimulus payments should be sufficient to allow a swift recovery in consumer spending to its pre-crisis levels. If the lockdown lasts longer, an extension of enhanced unemployment benefits will likely be necessary if consumption spending is to recover. These are among the findings of a study by Christopher Carroll and colleagues, which accounts for two novel features of the coronavirus crisis: first, during the lockdown, many types of spending are undesirable or impossible; and second, some of the jobs that disappear during the lockdown will not reappear when it is lifted.
Workers who bear the burden of social distancing policies: new evidence
What are the characteristics of workers in jobs likely to be initially affected by broad social distancing and later by narrower policy tailored to jobs with low risk of disease transmission? A new study finds that workers in low-work-from-home or high-physical-proximity jobs are more economically vulnerable: they are less educated, of lower income, have fewer liquid assets relative to income, and are more likely to be renters.
Household occupations and exposure to Covid-19: evidence from Thailand
The Covid-19 pandemic has disrupted working life in many ways, the negative consequences of which may be distributed unevenly under lockdown regulations. Evidence from Thailand shows that low-income individuals tend to work in occupations that require less physical interaction (lower risk of infection) but are less adaptable to work from home (higher risk of income/job loss) than high-income people. What’s more, positive occupational sorting among low-income couples amplifies these differences at the household level. Consequently, low-income families tend to face a disproportionately larger risk of income/job loss from lockdown measures.
How the first weeks of the coronavirus crisis hit Norway
Crisis-induced temporary and permanent layoffs in Norway quickly spread to industries that were not directly affected by social distancing measures, according to new research. Close to 90% of layoffs are temporary, although this classification may change as the crisis progresses. But there is suggestive evidence of immediate stress on a subset of firms that manifests itself in permanent rather than temporary layoffs.
The study finds that the shock had a strong socio-economic gradient, hit a financially vulnerable population and parents with younger children, and was driven by layoffs in smaller, less productive and financially weaker firms. Consequently, the rise in unemployment is likely to overstate the loss of output associated with the layoffs by about a third.
Pandemic recession: L- or V-shaped?
The lockdown instituted to prevent the spread of the novel coronavirus could have long-lasting negative effects on unemployment, according to a new study of the US labour markets. This is because the lockdown disproportionately disrupts the employment of workers who need years to find stable jobs.
The impact of shutdown policies on unemployment during a pandemic: US evidence
A new study uses high-frequency Google search data, combined with data on the announcement dates of non-pharmaceutical interventions (NPIs) during the pandemic to isolate the impact of NPIs on unemployment. Making use of the differential timing of the introduction of restaurant and bar limitations, non-essential business closures, stay-at-home orders, large-gatherings bans, school closures and emergency declarations, the researchers analyse how Google searches for claiming unemployment insurance (UI) varied from day to day and across states.
The results show that between 14 and 28 March, restaurant and bar limitations and non-essential business closures could explain 4.4% and 8.5% of UI claims respectively, while the other NPIs did not increase UI claims.
New data on how people have responded to the pandemic in six countries
A new study presents data collected on representative samples across six countries during the pandemic: China, South Korea, Japan, Italy, the UK and the four largest states in the United States. The information collected relates to work and living situations, income, behaviour (such as social-distancing, hand-washing and wearing a face mask), beliefs about the Covid 19 pandemic and exposure to the virus, socio-demographic characteristics and pre-pandemic health characteristics.
In each country, the samples are nationally representative along three dimensions: age, gender, and household income, and in the United States, they are also representative for race. The data were collected in the third week of April 2020.
How household spending responds to an epidemic: US evidence
As the number of Covid-19 cases grew, US households began to alter radically their typical spending across a number of major categories. New research finds that initially spending increased sharply, particularly in retail, credit card spending and food items. This was followed by a sharp decrease in overall spending. Households responded most strongly in states with shelter-in-place orders in place by 29 March. Greater levels of social distancing are associated with drops in spending, particularly in restaurants and retail.
Should I stay or should i go (out): The role of trust and norms in disease prevention during pandemics
New indices of mobility and trust in different countries can help to explain different mobility attitudes during the pandemic. For example, trust increases mobility around workplaces, groceries/pharmacies, parks, and transit stations.
The authors present a framework in which people decide whether to stay at home or go out and, if they go out, how much effort to spend to protect themselves from the disease, which has positive externalities on others. They assume that the effort cost of protection depends on the norm in the community and show that more people can go out when either the norm increases or people put more weight on it.
The theory sheds light on the empirical findings, which are based on Google Covid-19 Community Mobility Reports, the World Values Survey and the European Values Study.
Consumer panic in the Covid-19 pandemic: New index reveals considerable cross-country differences
A daily index of consumer panic for 54 countries from January to late April 2020, constructed from Google search data on relevant keywords, reveals widespread consumer panic in most countries, primarily during March, but with significant variation in the timing and severity of panic between countries.
Analysis of the data implies that both domestic and world virus transmission contribute significantly to consumer panic. But government policy is also important: internal movement restrictions – whether announced by domestic or foreign governments – generate substantial short-run panic that largely vanishes in a week to ten days.
Internal movement restrictions announced early in the pandemic generated more panic than those announced later. In contrast, travel restrictions and stimulus announcements had little impact on consumer panic.
Labor markets in the Covid-19 crisis: Job losses are much higher than unemployment claims suggest
The effect of Covid-19 on labour markets has drawn much attention from policy-makers, the media and the general public. New research presents evidence to suggest that job losses have been significantly larger than implied by unemployment claims alone, with an estimated 20 million jobs lost by 8 April 2020. Since many people are not actively looking for new work, the rise in the official unemployment rate appears surprisingly small, at only about two percentage points. But participation in the labour force has declined by seven percentage points, an unparalleled fall that dwarfs the decline that occurred from 2008 to 2016.
Baby steps: The gender division of childcare during the pandemic
The closure of schools and nurseries during the current pandemic has led to a huge burden of additional childcare for parents. New research discusses how survey data collected at the beginning of May 2020, which asked about employment and childcare pre- and post-Covid-19. The results show that women have borne the majority of this burden and many have been left juggling work and childcare. But fathers have also increased the time they spend on childcare and, when they are not working, there is an equal allocation.
The impact of communication on preferences for public policies: Evidence from a field experiment on the Covid-19 health-wealth trade-off
The way that people balance healthcare and financial concerns during the pandemic is an important area of concern for policy-makers, especially in relation to the communication of this trade-off. New research presents evidence from a survey of students in Italy comparing four different framings of the issue. The study implies that a ‘paternalistic’ framing on the healthcare side of the trade-off induces individuals to give greater relevance to this dimension overall. But economics students and students who have directly experienced the economic impact of the pandemic are found to favour policies that take greater account of the economic side.
Women’s work, housework and childcare, before and during Covid-19
Evidence from past economic crises indicates that recessions often affect men and women’s employment differently, with a greater impact on male-dominated sectors. New research explores the effect of Covid-19 on the working arrangements, housework and childcare for couples where both partners work. The results are gendered, whereby most of the additional workload associated to Covid-19 falls on women, while childcare activities are more equally shared within the couple than housework activities.
What and how did people buy during the great lockdown? Evidence from electronic payments
Individual transactional data can provide a broad picture of how consumers have reacted to Covid-19 and to the associated lockdown measures. New research takes data from sales in Portugal to explore the changes in behaviour. The authors identify a massive impact on overall purchases, from a baseline year-on-year monthly growth rate of 10% to a decrease of 45%. Purchases of essential goods increase mildly, contrasting with severe contractions in sectors that were closed by government order or depend heavily on tourism. Further, buyers also adjust their shopping strategies in rational ways to minimise public health risks.
US households’ beliefs and spending react little to policy announcements: New evidence
Government announcements about Covid-19 and the related lockdown measures have affected household expectations. A new study focuses on how US households have reacted to various fiscal and monetary policy announcements throughout the pandemic. Announcements such as information about the severity of the pandemic, recent actions by the Federal Reserve, stimulus measures, as well as recommendations from health officials are all documented against survey data on expectations.
The results suggest that, contrary to the powerful effects they are expected to have in standard macroeconomic analysis, announcements do not appear to affect beliefs and spending plans meaningfully at household level.
Covid-19: Older generations face the big health risks; younger generations face the big economic risks
Worker and firm behaviour changes in the presence of a pandemic such as Covid-19. A new study presents a labour market model, documenting the impacts of various lockdown scenarios. The results suggest that there may be a different response in both the evolution of the virus and the labour market with different degrees of lockdown severity. While the pandemic and ensuing policies affect the majority of the population negatively, the costs are not borne equally. While the old face the highest health risks, it is the young low-wage workers who suffer the most income and employment risk.
Working from home: A position of privilege during Covid-19
Covid-19 has had a substantial impact on labour market conditions all over the world. New research indicates that the labour market opportunities available to people have a significant bearing on how they experiences the outbreak on a personal level.
Individuals restricted only to offering wage labour in the traditional sense experience higher death rates in terms of their share of the population and suffer larger declines in labour and consumption. These workers are significantly worse off than their counterparts who can work from home, increasing inequality over time.
In response, simple containment policies, while leading to larger losses in economic prosperity, can significantly reduce death rates across the population and reduce the inequality that emerges post-epidemic.
Shopping online: Evidence from Japan on whether e-commerce will continue to grow in popularity post-pandemic
Covid-19 has led to changes in consumption patterns. While demand for services that involve face-to-face contact has decreased sharply, online consumption of goods and services is increasing. New research presents evidence from Japan, using credit card and transaction data, to assess whether online consumption will continue to rise post-pandemic.
The results suggest that the main group responsible for the increase are consumers who were already familiar with online consumption before the pandemic. What’s more, the proportion of those switching to online shopping from strictly offline shopping was not very different from the trend before the crisis and was more pronounced among young people. This implies that a certain portion of the increase in online consumption is likely to fall away again as the virus subsides.
Consumer valuation: How Covid-19 has changed attitudes to different goods
The lockdown measures imposed to combat Covid-19 have had a substantial impact on consumer behaviour and may have also changed consumer attitudes towards various goods and services. New research investigates attitudes in the UK, focusing on people’s valuations of online goods before and during the pandemic.
The results from surveys imply that there have been significant changes in consumer valuations, with some large differences attributable to the age and gender of respondents. In this sense, lockdown has acted as a natural experiment testing for the extent to which digital goods and physical goods are substitutes. These valuation changes may indicate which services are most valuable in a post-pandemic world where more activity takes place online.
From panic buying to cutting costs: Tracing UK household spending habits during the Covid-19 crisis
Covid-19 has spread rapidly across the globe, leading to fundamental changes in healthcare and the social and political landscapes of countries worldwide. The virus has also brought with it an unprecedented negative impact on the prospects of households and businesses.
New research examines consumer spending responses to the onset and spread of Covid-19, and to the subsequent government-imposed lockdown in Great Britain. The results highlight a strong increase in groceries spending consistent with panic buying and stockpiling behaviour in the two weeks following the World Health Organisation announcement describing Covid-19 as a pandemic.
The study also finds variations in the level and composition of consumer spending across nations and regions, and by age, gender, and income level, suggesting that policy-makers should be mindful of the variability in behavioural changes during the crisis.
Covid-19 and inflation: How changes in consumer behaviour could warp prices
Sharp changes in consumer expenditure during the Covid-19 pandemic could affect inflation levels. New research takes data from credit card transactions, quantifying the changes in consumer spending to form an alternative measure to the standard consumer price index (CPI).
The results suggest that the annual inflation rate of the Covid-19 price index was -0.4% by April 2020, compared with -1.1% of the equivalent CPI. This implies that persistent ‘low-touch’ consumer behaviour could lead to inflation being underestimated by more than a quarter of a percentage point until the end of 2020.
Covid-19 and US unemployment: How occupational content affects job security during the pandemic
The effects of the ‘Great Lockdown’ on the US labour market are at the forefront of policy debates around the management of the pandemic. New research evaluates employment, identifying that jobs with a high ‘non-routine content’ are especially well protected, even if they are not teleworkable.
The study also finds that jobs that are subject to higher structural turnover rates are much more likely to be terminated, suggesting that easier-to-replace employees were at a particular disadvantage, even within sectors. At the same time, there is evidence of ‘labour hoarding’ for more valuable matches. In addition, individuals in low-skilled jobs fared comparatively better in industries with a high share of high-skilled workers.
Consumer credit and Covid-19: Changes in availability and use
The Covid-19 crisis has had a substantial effect on consumer behaviour, including consumers’ access to, and use of, credit. New research indicates that in US counties severely affected by the pandemic, creditworthy borrowers reduced their credit card balances and credit card transactions, while the least creditworthy borrowers increased their outstanding balances.
Furthermore, while both local pandemic severity and non-pharmaceutical interventions have a significantly negative effect on credit use, the pandemic itself is the main driver. There has also been a drastic reduction in credit card originations, as well as a reduction in the credit limits of newly issued credit cards to the riskiest borrowers, which is consistent with a ‘flight-to-safety’ response of banks to the Covid-19 shock.
Longer-run economic consequences of pandemics
Pandemics have longer-run effects on the natural rate of interest – a critical economic barometer and policy marker. Research by Òscar Jordà and colleagues reveals how historical data since the 14th century on the 15 largest pandemics suggests that the real natural rate could drop by close to 1.5 percentage points over the next 20 years, a decline similar to that seen since the 1980s. Significant macroeconomic after-effects of the pandemics persist for about 40 years; while real wages remain somewhat elevated following pandemics. These findings are consistent with pandemics inducing labour scarcity and/or a shift to greater precautionary savings.
Global economic and financial effects of 21st century pandemics and epidemics
A study by Chang Ma and colleagues provides perspective on the possible global economic and financial effects from Covid-19 by examining the handful of similar major health crises in the 21st century. Their results indicate that real GDP is 2.6% lower on average across 210 countries in the year of the official declaration of the outbreak and is still 3% below its pre-shock level five years later. The negative effect on GDP is felt less in countries with more aggressive first-year responses in government spending. Consensus forecast data suggests a pessimistic view on real GDP initially that lasts for two months, an effect that is larger for emerging market economies. Stock market responses indicate an immediate negative reaction. Finally, there is a fall in corporate profitability and employment, and an increase in debt, the last of which is further reflected in higher sovereign CDS spreads.
The 1918 epidemic and a V-shaped recession: evidence from Denmark
A study by Casper Worm Hansen and colleagues combines high-quality vital statistics data with annual income data at the municipality level to study the economic aftermath of the 1918 influenza epidemic in Denmark. They find that more severely affected municipalities experienced short-run declines in income, suggesting that the epidemic led to a V-shaped recession, with relatively moderate, negative effects and a full recovery after two to three years. Month-by-industry unemployment data shows that unemployment rates were high during the epidemic, but decreased again only a couple of months after it receded. This evidence also indicates that part of the economic downturn in 1918 predates the epidemic.
Covid-19 and the macroeconomic effects of costly disasters
Research by Serena Ng and colleagues quantifies the macroeconomic impact of costly and deadly disasters in recent US history, and translates these estimates into an analysis of the likely impact of Covid-19. They forecast that the shock will lead to a cumulative loss in industrial production of 12.75% and in service sector employment of nearly 17% or 24 million jobs over a period of ten months. For each month that a shock of the same magnitude is prolonged from the base case, cumulative employment losses will increase by another 6% and macro uncertainty persist for another month.
Using the eye of the storm to predict the wave of Covid-19 unemployment insurance claims
Research by Daniel Aaronson and colleagues uses the seven costliest hurricanes to hit the US mainland since 2004 to identify the elasticity of unemployment insurance filings with respect to search intensity. Applying their elasticity estimate to state-level Google Trends indexes for the topic ‘unemployment,’ they show that out-of-sample forecasts made ahead of the official data releases for March 21 and 28 predicted to a large degree the extent of the Covid-19 related surge in the demand for unemployment insurance. In addition, they provide a robust assessment of the uncertainty surrounding these estimates and demonstrate their use within a broader forecasting framework for US economic activity.
Pandemics and local economic growth: evidence from the Great Influenza in Italy
The Great Influenza Pandemic of 1918 caused 600,000 deaths in Italy, a death rate of about 1.2%. Research by Mario Carillo and Tullio Jappelli finds that going from regions with the lowest mortality to the ones with the highest mortality is associated with a decline in GDP per capita growth of about 6.5%, an effect that dissipated within three years. The severity of the pandemic in the less developed regions of the country, along with the limited implementation or largely ineffective measures of central and local interventions by public authorities, point to these estimates as indicative of an upper bound of the transitory adverse effect of pandemics on local economic growth.
COVID-19 will raise inequality if past pandemics are a guide
Major epidemics in this century have raised income inequality and hurt the employment prospects of people with low educational attainment, while scarcely affecting those with advanced degrees. New research concludes that the Covid-19 pandemic could have similar distributional consequences unless this time is different and government policies end up being effective in raising boats more than yachts.
The long-run persistence of public health outcomes in pandemics: comparing Covid-19 and the Spanish flu
A new study of historical mortality from pandemics finds a strong persistence in public health performance in the early days of the Covid-19 pandemic. Parts of the world that performed poorly in terms of mortality in 1918 during the Spanish flu pandemic are more likely to have higher mortality today. This is true across countries and across a sample of US cities. Experience with SARS is associated with lower mortality today.
Distrust of expert advice, lack of cooperation at many levels, over-confidence, and healthcare supply shortages are likely to have promoted higher mortality today as in the past.
The medium-run impact of non-pharmaceutical interventions: Evidence from the 1918 influenza in American cities
Non-pharmaceutical interventions (NPIs), such as school closures and social distancing used to fight the 1918 influenza pandemic, introduced a trade-off, according to a new study. While they could lower the fatality rate during the peak of the pandemic, they might also have reduced the herd immunity and significantly increased the death rate in subsequent years. There is no significant association between the implementation of NPIs and cities' growth.
The spread of Covid-19 and the BCG vaccine: Evidence from a natural experiment in reunified Germany
As the pandemic has spread across the globe, several observers have noticed that countries still administering an old vaccine against tuberculosis – the BCG vaccine – have had fewer COVID-19 cases and deaths per capita in the early stages of the outbreak. A new study looks at whether and how COVID-19 prevalence changed discontinuously at the old border between West Germany and East Germany, which had very different vaccination policies during the Cold War era.
There is evidence of a sizable discontinuity in COVID-19 cases at the border. But the difference in novel coronavirus prevalence is uniform across age groups and the discontinuity disappears when commuter flows and demographics are taken into account. These findings are not in line with the BCG hypothesis.
How the 2003 SARS epidemic shaped Chinese trade
New research examines the impact of the Severe Acute Respiratory Syndrome (SARS) epidemic on China's trade. Using quarterly transaction-level trade data for all Chinese firms, the authors find that firms in regions with local transmission of SARS experienced lower import and export growth at both the intensive and extensive margins, compared with those in the unaffected regions.
The affected firms' trade growth remained lower two years after SARS. Products that are more capital-intensive, skill-intensive, upstream in the supply chains and differentiated experienced a smaller export decline but a stronger recovery. Small exporters were more likely to exit, slowing down trade recovery.
Lessons from history: The impact of the 1918 influenza pandemic on income inequality
The 1918 influenza pandemic offers some useful lessons for researchers assessing the dynamics of Covid-19. New research focuses on the changes in income inequality in Italy in 1918.
The results of the historical study show that in the short to medium run (after five years), income inequality is higher in Italian municipalities more afflicted by the pandemic. This effect is mostly explained by a reduction in the share of income held by poorer people. Crucially, the results also imply that these differences in income inequality may persist even after a century.
How the pandemic threatens mental health
Fear and imposed isolation due to the outbreak of Covid-19 have raised alarms about the impact on mental health on a global scale. New research suggests that for those who already have psychological disorders, the pandemic is an additional factor of distress and tension. History has shown that previous pandemics and recessions harmed population mental health, including having a negative impact on suicidal behaviour.
To combat this, research suggests that the recipe to mitigate depressions and suicide behaviours centres around investment in mental healthcare (such as suicide prevention services) and in active employment policies.
Covid-19 in Asia: Lessons from the SARS outbreak
Two decades after the SARS outbreak, Asia has been confronted with Covid-19, which has caused an even greater economic impact to the region. New research evaluates China and the ASEAN countries’ experiences of SARS and Covid-19 as a case study, with the intention of identifying the economic impact of a pandemic in terms of global production linkages.
The results imply that in the absence of policy intervention, the greater importance of China in global value chains is associated with greater economic impacts, both within China and in the wider ASEAN region.
Time for beds: boosting hospital capacity reduces mortality from Covid-19
Cross-country evidence shows that increasing the number of hospital beds leads to a substantial reduction mortality rates from Covid-19. Hospital beds are likely to capture the capacity of ICU, laboratories and other hospital-related equipment. Facing a potential second or third wave of infection following an exit from lockdown policies, countries short on medical infrastructures should increase them immediately.
Seller reputation and price gouging: evidence from the Covid-19 pandemic
As with other crises, the Covid-19 pandemic has seen sudden excess demand for certain goods and consequent price surges. Such price hikes often lead the public to call for laws protecting consumers from price gouging. New research provides evidence that larger and older sellers engage less in price gouging as they risk greater reputational loss from hiking prices in response to excess demand. Policy-makers might use seller reputation as a policy tool by barring new sellers from setting prices higher than incumbent sellers.
Missing emergencies: evidence from Chile on lockdown and health risk during the pandemic
Healthcare practitioners around the globe have observed that the crisis has been associated with an unprecedented decrease in non-Covid-19 visits to emergency departments. New evidence from Chile corroborates this observation and studies the potential causes for this decrease. The research shows that crisis-induced changes in mobility patterns explain a significant portion of the overall drop in non-respiratory emergency room visits, especially for visits related to trauma and poisoning.
The results reveal that an important reason for the dramatic drop in non-Covid-19 use of emergency care is the lower incidence of emergencies. This result suggests that lockdown measures may have the unexpected benefit for public health of freeing up healthcare resources to confront the pandemic.
If the objective is herd immunity, on which citizens should it be built? New analysis
Assuming that ultimately there is no other solution to the pandemic than herd immunity, on which categories of citizens should it be built? That is the question raised in a new study. Given the fact that young people face a mortality rate which is at least 1,000 times smaller than people aged 70 years and more, there is a simple rationale for building it on these younger generations. But the transfer of some mortality risk to younger people raises difficult ethical issues.
The author notes that none of the familiar moral or operational guidelines (equality of rights, VSL, QALY) that have been used in the Western world over the last century weights the value of young lives 1,000 times or more than the lives of the elders. This suggests that society could offer Covid protection to older people by confining them as long as this herd immunity has not been attained by the younger generations. This would be a potent demonstration of intergenerational solidarity towards the most vulnerable people in our community. The welfare gain of this age-specific ‘deconfinement’ strategy is huge, as it can reduce the global death toll by more than 80%.
Covid-19 and people's health-wealth preferences: Experimental evidence
Policy-makers responding to COVID-19 need to know people's relative valuation of health over wealth. Loosening and tightening lockdowns moves a society along a (perceived) health-wealth trade-off and the associated changes have to accord with the public's relative valuation of health and wealth for maximum compliance.
In a recent survey experiment with over 4.500 participants, researchers randomise information provision on economic and health costs to assess public preferences over this trade-off in the UK and the United States. The results show that people strongly prioritise health over wealth, but it is likely that these priorities will change as experience of COVID-19 deaths and income losses evolves. These results encourage policy caution.
Impact of the state of emergency declaration for Covid-19 on preventive behaviours and mental conditions in Japan
Covid-19 is well known for its direct impacts on healthcare systems as new patients are administered having contracted the virus. But new research shifts the focus onto the pandemic’s impact on preventive behaviours and mental conditions. The authors find that in Japan the emergency declaration led to increased anger, fear and anxiety. The effect of the declaration on the promotion of preventive behaviours was larger than the detrimental effect on mental conditions, and, overall, the effect on women was larger than that on men.
Face masks considerably reduce Covid-19 cases in Germanys in Japan
Face masks have been the subject of much debate within politics and the media. New research explores the effect of face masks on the spread of Covid-19 in Germany. By exploiting the regional differences of policy in Germany, it is possible to evaluate the impact of masks. The authors find that face masks reduced the cumulative number of registered cases by between 2.3% and 13% over a period of 10 days after they became compulsory. Assessing the credibility of the various estimates, it can be shown that face masks reduce the daily growth rate of reported infections by around 40%.
Hospital care during Covid-19: Evidence from patient data for Ontario
In recent months, a great deal of focus has been on hospitals’ capacity to process large numbers of patients admitted with symptoms of Covid-19. New research presents a patient-level analysis of the dynamics of the virus in Ontario.
The authors use individual medical records in order to examine the daily transitions of patients through medical care of different intensity. Treatment durations are also examined in order to build a more accurate picture of how much care patients require.
Narrative economics, public policy and mental health
Analysis of emotional distress experienced by British and Italian residents before and after the implementation of lockdown finds that the policy affected public mental health via the cognitive bias of salient public death toll statistics. Countries had a pre-existing culturally relative disposition towards death-related anxiety, and the magnitude of their response to the pandemic varies in a cultural hysteresis manner. Searches for the keyword ‘suicide’ decreased during the pandemic, while the interest in trivia remained unaffected, as indicated through searches for the keyword ‘chair’.
Daily suffering: Evidence from helpline calls in Switzerland during the crisis
A new study uses helpline calls to measure psychological and social suffering at a daily frequency. The data are from Switzerland’s most popular free anonymous helpline, and the authors compare calls first, between the pandemic period of 2020 and the corresponding period of 2019, and second, along the timeline of the lockdown.
They find the total volume of calls to have grown in line with the long-run trend. To the extent that calls did increase, this was mainly explained by worries linked directly to the pandemic: calls by persons over 65 and calls about fear of infection. Encouragingly, calls about violence were down on the previous year.
Calls about addiction and suicide increased during the initial phase of the lockdown, levelled off and returned to their 2019 levels once gradual opening started. Calls about relationship problems decreased in the early phase of the lockdown, and gradually increased, again reaching 2019 levels once opening up started. Overall, these results suggest that psychological and social strain is of second-order importance relative to the medical anxieties generated by the pandemic.
In crisis, we pray: Religiosity has increased during the pandemic
In times of crisis, humans have a tendency to turn to religion for comfort and explanation. The 2020 COVID-19 pandemic is no exception. Using daily data on Google searches for 95 countries, new research demonstrates that the crisis has increased Google searches for prayer (relative to all Google searches) to the highest level ever recorded.
The study shows that more than half of the world population had prayed to end the coronavirus. The rise amounts to 50% of the previous level of prayer searches or a quarter of the fall in Google searches for flights, which dropped dramatically due to the closure of most international air transport.
Prayer searches rose at all levels of income, inequality and insecurity, but not for the 10% least religious countries. The increase is not merely a substitute for services in the physical churches that closed down to limit the spread of the virus. Instead, the rise is due to an intensified demand for religion: people pray to cope with adversity.
Learning from friends in a pandemic: New evidence on social networks and the macroeconomic response of consumption
Social networks can provide a mechanism through which changes in individual consumption are disseminated in response to Covid-19. New research analyses US data to show how a 10% rise in cases and deaths in counties connected through the social network is associated with a 0.64% and 0.33% decline in consumption expenditures, roughly three to seven times larger than the direct effects of local cases or deaths. This suggests that individuals incorporate the experiences from their social network to inform their own consumption choices. This is particularly evident within consumer goods and services markets, which rely more on social contact.
Lost in lockdown? Evidence of the effects of social distancing on mental health in Germany
Data from Telefonseelsorge, the largest German emergency helpline service show that overall contacts increased by around 25% in the first week of the lockdown and slowly decreased again after the third lockdown week. Analysis suggests that the increase was not driven by financial worries or fear of the virus itself, but reflects heightened loneliness, anxiety, and suicidal ideation. The average effect was more pronounced in states that implemented stricter lockdown measures.
Contagion and conflict: Evidence from India
In India, the health, economic and security impacts of the pandemic are playing out in volatile and potentially catastrophic ways, especially in conflict-affected states. New research documents early evidence of the causal impact of virus proliferation on conflict risks across Indian districts, indicating a sustained decline in conflict after the first case is reported. But there is a countervailing increase in the probability of Covid-19 related conflict. Poor districts and districts with low health infrastructure demonstrate an increase in riots, suggesting an additional area of immense concern for policy-makers trying to combat the crisis.
Social capital and the spread of Covid-19: Insights from European countries
In the absence of viable medical responses to combat the pandemic, policy-makers have appealed to the social responsibility of their citizens to comply with social distancing rules. New research explores how regional differences in social capital can affect the spread of Covid-19, focusing on seven European countries. The results suggest that areas with high social capital registered between 12% and 32% fewer Covid-19 cases from mid-March until mid-May. Evidence from Italy validates the independent role of social capital, showing a consistent reduction in excess deaths and documenting a reduction in mobility prior to the lockdown as a mediating channel.
Mental health effects of the lockdown and social distancing in the UK
Covid-19 has had numerous impacts on people’s wellbeing, not least their mental health. New research present evidence suggesting that mental health in the UK worsened by 8.1% as a result of the pandemic. This impact has been much worse for young adults and for women – groups that already had lower levels of mental health before the arrival of the virus. Further, even larger effects are observed for measures of mental health that capture the number of problems reported, or the fraction of the population reporting any frequent or severe problems, which more than doubled.
Promoting social distancing in a pandemic: Beyond the good intentions
Reminders to promote social distancing have been ubiquitous throughout the Covid-19 crisis, but little is known about their effectiveness. New research presents evidence from Denmark, where people received different versions of a reminder to stay home. Results indicate that the reminder significantly increases people’s compliance when it emphasises the consequences of non-compliance for the respondent or his/her family, while it has no impact when the emphasis is on other people. More broadly, while reminders may be useful to protect groups at risk, such a tool has no significant impact on the behaviour of those who face limited personal risks.
Lockdowns cut crime: Evidence from Bihar, India
The Covid-19 pandemic has resulted in over two billion people being affected by lockdowns worldwide. This has significant socio-economic implications, especially in areas such as crime, where police resources are diverted from crime prevention towards enforcing lockdowns.
A new study presents evidence from Bihar, India, showing that lockdown decreased aggregate crime by 44%. What’s more, analysis of geographical variation in the severity of lockdowns across districts shows that relaxing initial restrictions increases crime, but the increment is lower in less restrictive lockdowns than in restrictive ones.
Socio-economic disparities in travel behaviour in the pandemic: Poorer, less educated Americans were far less able to reduce their mobility
A large impact of Covid-19 has been drastic changes to people’s travel patterns. A recent study takes data from King County, Washington, documenting the transformation of individual mobility throughout the pandemic.
The results indicate large average declines in travel, with a substantial drop in the use of public transport. But this may mask the demographic variation in travel pattern changes.
The authors show how travel intensity declined considerably less among less-educated and lower-income individuals. The relative inability of less-educated and lower-income individuals to cease commuting explains at least half of the difference in travel responses across groups.
The hidden danger of social capital: US evidence on the spread of the pandemic
A large body of research has helped to identify social capital as a key social determinant of positive healthcare outcomes. Notwithstanding that, because personal social interactions are implicated in the spread of viral infections, areas with high levels of social capital may have been especially at risk during the early phases of the Covid-19 pandemic.
New research analyses data from US counties on laboratory-confirmed Covid-19 cases and deaths against county-level social capital measures. The results suggest that the spread of the disease was faster the higher the social capital in a community. As governments lift mandatory social distancing, social capital may play a key role as a social determinant of health and should not be overlooked.
Culture as a public good: A key role in protecting citizens’ mental health
Cultural goods and services are valuable to many communities, especially during times of hardship. A new study frames culture as a public good for preserving mental health, arguing that the function of culture in human life has evolutionary roots in the individual self-defence of mental health from uncertainty.
The results of the research suggest that on a micro-level, culture is generally underestimated in its potential role as a public good guaranteeing the psychological resilience in socio-economic shocks. On aggregate level, data about public spending on culture are associated with lower anxiety or fear, suggesting that culture should be seriously explored as a tool for mental health support.
Cultural variation and the spread of Covid-19: Evidence from different communities in Switzerland
Despite the rapid spread of Covid-19 all over the world, there is still dramatic variation between, and within, countries in terms of the speed of the infection, in the observed fatality rates and the effectiveness of the containment measures put in place. A new study sheds light on the role of culture by making use of the large cultural variation between German and Latin (French and Italian) speaking regions in Switzerland.
The variation in experiences across the groups suggests that Latin regions are experiencing a faster decline in the growth rate of new cases, hospitalisations, and deaths than their German counterparts. This implies that a greater focus on cultural practices of different groups would be a pragmatic move for policy-makers.
The importance of data accuracy in Covid-19 policy: Evidence from Mexico
Information is an important policy tool for managing epidemics, but issues with data collection may hinder its effectiveness. Focusing on Covid-19 in Mexico, new research explores whether delays in reporting deaths affect individuals’ beliefs and behaviour. Using an online survey, the authors provide information to respondents either accounting or not for delays in death reports.
How to allocate COVID-19 tests across regions: evidence from Italy
Tests are crucial to detect people who have been infected by COVID-19 and to observe in real time whether the dynamics of the pandemic are accelerating or decelerating. But tests are a scarce resource in many countries. New research proposes a data-driven and operational criterion to allocate tests efficiently across regions, with a view to maximising the fraction of tested people who are positive.
When applied to Italian regions, the criterion reveals that the shares of tests that should go to each region differ significantly from the present distribution. Some regions have received too many tests, others too few; substantial share of tests conducted in Lombardy, Veneto and Emilia-Romagna (where the pandemic spread more rapidly at the beginning) should now be allocated to other regions.
Testing and conditional quarantine policies to reduce infections and economic costs
During a period of asymptomatic infection, testing can reveal infection that otherwise would only be revealed later when symptoms develop. Testing therefore makes possible the identification and quarantine of infected individuals and release of non-infected individuals.
New research compares such simple testing and quarantine policies with a baseline quarantine-only policy that replicates the rate at which individuals entering quarantine in the United States in March 2020. The results show that the total deaths that occur under the baseline policy can occur under looser quarantine measures and a substantial increase in random testing of asymptomatic individuals. Testing at a higher rate in conjunction with targeted quarantine policies can dampen the economic impact of the coronavirus and reduce peak symptomatic infections, which is relevant for hospital capacity constraints.
Optimal lockdown policy
A new study examines the optimal lockdown policy for a social planner aiming to control the fatalities of a pandemic while minimising the output costs of the lockdown. The policy depends on the fraction of infected and susceptible in the population, prescribing a severe lockdown beginning two weeks after the outbreak, covering 60% of the population after a month, and gradually withdrawing to 20% of the population after the months.
The intensity of the optimal lockdown depends on the gradient of the fatality rate with respect to the infected, and the availability of antibody testing that yields a welfare gain of 2% of GDP. A test-tracing and quarantine policy is complementary to a lockdown.
Getting people back into work: Key considerations
Governments are starting to ease restrictions to economic activity. The risks of easing these measures too soon, or in misguided ways, are obvious, not only for public health but also for the economy. A world with no lockdown and a pandemic spreading rapidly through the population does not make for a healthy economy. Nor, in all likelihood, does a world in which containment measures have to be repeatedly reinstated after being eased prematurely or in suboptimal ways.
A new study discusses some key economic issues that the UK government needs to face when thinking about how best to get people back into work: the authors assemble some basic empirical evidence, identify some challenges that policy-makers will need to confront and discuss some policy considerations.
Assessing the spread of the novel Coronavirus in the absence of mass testing: A big challenge
New research on the UK shows how difficult it is to estimate the spread of the virus until very large samples of the population can be tested. Nonetheless, there is evidence that the infection may have spread far enough to mean that the trajectory of falling new cases could be maintained with some easing of restrictions.
The study outlines a simple method for estimating the spread of the COVID 19 virus in the absence of data on test results for a large, random sample of the population. It applies the method to the UK, and other countries, and finds that to match data on daily new cases of the virus, the estimated model favours high values for the number of people infected but asymptomatic. That result is very sensitive to whether the transmission rate of the virus is different for symptomatic and asymptomatic cases, something about which there is significant uncertainty.
How to exit lockdowns: Culture matters
It has been difficult to establish exactly why there is such large variation in Covid-19 infection and death rates across, as well as within, countries. New research argues that differences in the way people interact can explain part of this variation. Simulations show that the measures that Belgium would need to take when re-opening its economy would be more moderate if it had the same interaction patterns as Germany, and stricter if it had Italy’s interaction patterns. There is no one-size-fits-all solution that could be applied to all countries, or even to all regions within a country.
Production networks and epidemic spreading: How to restart the UK economy
Many governments are slowly unwinding their economies from nationwide lockdowns. But re-opening the economy entails a serious trade-off between fostering economic output and keeping the spread of infection low. New research reports several re-opening scenarios for the UK economy, documenting their projected impacts on both GDP and the spread of the virus. The results suggest that it is best to re-open upstream industries first, as they provide a large direct and indirect economic boost at a relatively lower cost in terms of further epidemic spreading.
Cost-benefit analysis of age-specific deconfinement strategies
The trade-off between flattening the infection curve and mitigating the economic impact has drawn much attention in recent weeks. New research suggests that a ‘suppression policy’ would crush the curve by confining 90% of the population for four months to eradicate the virus. The flatten-the-curve policy would reduce the confinement to 30% of the population for five months, followed by almost one year of free circulation of the virus to attain herd immunity. Both strategies yield a total cost of around 15% of annual GDP when combining the economic cost of confinement with the value of lives lost.
Six degrees of separation for Covid-19: The external costs and benefits of extended distancing for different social groups
After an initial period of crisis management, governments must consider what measures must be kept in place until a vaccine or reliable treatment for Covid-19 arrives. New research adapts a workhorse epidemiological, finding evidence to suggest that the least-cost policy likely involves continued isolation of all who can work or study at home, while other workers practice strong social distancing. The value of the risks a single person can impose on the rest of society by not staying at home can be substantial, generally increases as restrictions loosen, and should be weighed against the private benefits of returning to circulation.
Optimal Covid-19 quarantine and testing policies
Many countries are taking measures stopping productive activities to slow down the spread of Covid-19. At times these measures have been criticized as being excessive and too costly. New research presents an assessment of the optimal response mechanism to an infectious disease. Results indicate that extreme measures seem optimal in spite of the high output cost that it may have in the short run. Further, the authors find that testing is a very close substitute of quarantine and can substantially reduce the need for indiscriminate quarantines going forward.
Population density and urban structure: The geographical factors of Covid-19 policy
The transmission and incidence of Covid-19 infections differ markedly across areas in the United States. Using daily infection rates at the county level, new research explores how population density and the organisation of a city both correlate to the speed of transmission and stay-at-home orders.
The results indicate that population density is associated with higher transmission speeds in particular at the start of outbreaks. Density is also associated with stronger sheltering responses, but mostly in later phases of the outbreak. Densely populated places are initially prone to faster viral spread, and later develop stronger sheltering responses.
The considerable spatial differences in both the speed of transmission and the mobility responses to local infection could explain differences in the pandemic's toll across cities and counties.
Covid-19 and anti-vaccination sentiment: US evidence of what might happen if people refuse the vaccine
The scientific community has come together in an unprecedented effort to find a Covid-19 vaccine. But the success of any vaccine depends on the share of the population that gets vaccinated. New research presents survey evidence from the United States, focusing on individuals’ intentions to vaccinate themselves and their children.
The results suggest that 20% of people in the country would decline the vaccine. General vaccine hesitancy, distrust of vaccine safety and vaccine novelty are among the most important deterrents to vaccination. The authors then apply this finding to an epidemiological model, identifying a middle-of-the-road scenario where a vaccine will benefit public health by saving many lives but nevertheless may fail to achieve herd immunity.
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About Covid Economics
The Covid-19 breakout challenges all areas of economics including, but not only, health, industrial organization, macroeconomics, finance, history, development, inequality, political economy and public finance, and concerns theory as well as empirical evidence. We are thus looking for submissions in all these areas and aim to have a wide geographical coverage.
Submissions are promptly evaluated by the Editorial Board, usually over a maximum of 48 hours, on an accept/reject basis, i.e. no resubmission and no referee report. When a sufficient number of papers are accepted, an issue of Covid Economics: Vetted and Real-Time Papers is published online by CEPR Press, and thus its frequency is determined endogenously. We consider the papers as preprints, a common practice in medicine where results need to be out quickly as input into the debate. Therefore, we encourage all authors to also submit their papers to a professional journal. A number of leading journals have indicated that they will accept such submissions (the list will be announced soon). CEPR-affiliated researchers may also publish them in the CEPR Discussion Paper series.
Submissions are invited from all researchers, not just those affiliated with CEPR. They can be uploaded here. We are looking for reasonably short contributions (approx. 5000 words, though this is not a requirement; submissions could be longer or shorter than this) that make a clear research contribution. Accepted papers will be copy-edited by CEPR staff.
For all enquiries, please email [email protected]