This week from CEPR: April 16

MEASURING THE IMPACT OF THE GERMAN PUBLIC SHUTDOWN ON THE SPREAD OF COVID-19

Tobias Hartl, Klaus Wälde, Enzo Weber            
14 April 2020

TESTING FOR CORONAVIRUS INFECTIONS AND ANTIBODIES: Views of leading economists on the need for increased capacity to prepare for ending lockdowns

Romesh Vaitilingam             
10 April 2020

HOW THE IMF SHOULD RESPOND TO AN EMERGING MARKETS DEBT CRISIS

Tobias Krahnke            
14 April 2020

A MINIMUM EFFECTIVE TAX RATE ON GLOBAL MULTINATIONAL PROFITS: To fund public services and give legitimacy to Covid-19 rescue plans 

Sébastien Laffitte, Julien Martin, Mathieu Parenti, Baptiste Souillard, Farid Toubal            
14 April 2020

MONETISATION: Do not panic

Olivier Blanchard, Jean Pisani-Ferry             
10 April 2020

COVID, REMOBILISATION AND THE ‘STRINGENCY POSSIBILITY CORRIDOR’: Creating wealth while protecting health

Richard Baldwin             
10 April 2020

The world is at war with Covid-19; containment policies are a key weapon. But this is not ‘total war’ where trade-offs can be waved off; governments must perform balancing acts. Writing at Vox, Richard Baldwin argues that instead of thinking about containment stringency as balancing dollars versus deaths, we should think of it as balancing infections versus tolerability.

Containment policies must stay in the ‘corridor’ where they are stringent enough to avoid overwhelming hospitals, but lax enough to avoid overwhelming citizens’ tolerance levels. Solving the dilemma will require an increase in production and a relaxation of constraints – in short, it will involve a partial remobilisation of the workforce. The mission-critical task is to develop a strategy for remobilising workers without risking a medical overload.

GLOBALISATION AND FINANCIAL CONTAGION: An historical study

Olivier Accominotti, Marie Briere, Aurore Burietz, Kim Oosterlinck, Ariane Szafarz        
10 April 2020

The patterns of global history suggest that the Covid-19 pandemic is likely to cause another enormous ‘stress test’ for globalisation, forcing firms and nations to limit travelling and trade, perhaps leading to a re-evaluation of the international system. These are the findings of a new study by Olivier Accominotti and colleagues, analysing how patterns of globalisation and contagion have changed over time.

ARE WORKERS LESS PRODUCTIVE AT HOME? Evidence from Japan

Masayuki Morikawa            
10 April 2020

Masayuki Morikawa makes use of the teleworking arrangements implemented at his workplace to investigate the impact on productivity. In a survey, workers indicate that they are, on average, less productive at home than in the office. While some of the reasons for this, such as lack of familiarity with remote access software, will fade over time, other factors suggest that a productivity gap will remain.

In this respect, subsidising firms’ or individuals’ ICT investments related to teleworking can be considered wise spending. It immediately creates a demand for ICT equipment and software, as well as improving productivity at home.

PANDEMICS AND ASYMMETRIC SHOCKS: Lessons from the history of plagues

Guido Alfani          
09 April 2020

Writing at Vox, Guido Alfani examines major plague episodes from the past millennium to draw lessons for the current crisis. The history of plagues has two important lessons for modern societies struggling to cope with Covid-19. First, it confirms that severe pandemics can have extremely important and potentially permanent asymmetric economic consequences. Second, it clarifies the ‘unjust’ character of asymmetric shocks. Dealing with the asymmetric shocks of Covid-19 and preventing similar economic collapse calls for coordination and collective action by affected countries.

ECONOMIC POLICY AND FINANCIAL MARKET EXPECTATIONS DURING COVID-19

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

A new study by Alexander Kriwoluzky and colleagues explores the evolution of financial market participants’ expectations during the Covid-19 pandemic, estimating yield curves of bonds in France, Germany, Italy and Spain. The authors carry out an event study to investigate the potential impact of European fiscal and monetary policy measures on these yields. The results suggest that policy measures must be large and coordinated on the European level, and that fiscal and monetary policy must act jointly to fight the pandemic’s negative economic consequences. 

THOUGHTS FROM A TOTAL LOCKDOWN IN ARGENTINA

Federico Sturzenegger           
09 April 2020

Argentina has been in lockdown since early March. This column points to two questions: Why should workers pay rent when they are banned from selling their labour? Why should the incomes of people with secure jobs be smoothed as much as those who have lost their jobs? In this moment of dire fiscal need, it seems inefficient to transfer money to the relatively well off – especially at a time when they cannot spend it. 

CHILDREN FROM LOW-INCOME AND LESS-EDUCATED HOUSEHOLDS WILL LIKELY SUFFER MOST FROM COVID-19

Gloria Moroni, Cheti Nicoletti, Emma Tominey           
09 April 2020

The Covid-19 crisis will not affect all families equally, but will cause particular harm to children from low-income and less-educated households. Writing at Vox, Cheti Nicoletti and colleagues conclude that socio-emotional issues in children will be amplified if their home environment is stressful. They suggests some ways that governments can mitigate that stress and support struggling families, including home schooling broadcast on television and strong and supportive welfare provisions. 

THE COVID-19 CRISIS IN DEVELOPING COUNTRIES: Trade protectionism will cost lives

Alvaro Espitia, Nadia Rocha, Michele Ruta          
14 April 2020

In response to Covid-19, many parents are now juggling housework and paid work with a sudden increase in childcare responsibilities. The way parents respond to this shock can have significant implications for children’s development, household income, gender equality, family stability and general wellbeing.

A new study by Jonas Jessen and Sevrin Waights asks what the impact of daycare closures are on time use for parents of pre-school-aged children using evidence from Germany. They find reduced parental activities with children in the additional time; reduced paid work, especially for women; and an otherwise more stressful time allocation (more housework, less leisure). Policy responses should consider the impacts of these changed allocations on child development, gender equality, household income, social inequality, and family wellbeing.

INDIA’S LOCKDOWN

Debraj Ray, Sreenivasan Subramanian, Lore Vandewalle        
08 April 2020

On 24 March, the government of India ordered a nationwide lockdown of 1.3 billion people for 21 days as a preventive measure against Covid-19. Given what we know of the epidemic, it is difficult to quarrel with the prescription of social distancing and lockdown, when accompanied by state measures that provide adequate economic protection. But writing at Vox, Debraj Ray, Sreenivasan Subramanian and Lore Vandewalle ask what happens when the state is unable to provide the necessary back-up welfare measures.

Read the full CEPR Policy Insight here. 

THE IMPACTS OF AGRIBUSINESS-LED DEVELOPMENT ON FARMING INCOMES AND PROFITS

Swati Dhingra, Silvana Tenreyro          
14 April 2020

Nearly 80% of the world’s poorest inhabitants live in rural areas and labour in agriculture. Because they lack the productive assets or infrastructure needed to market their produce, strategies intended to encourage agribusinesses-led development of such markets rank high on many policy agendas. Still, systematic studies of the efficacy of these policies remain scarce. This column examines the impact that promoting agribusiness-participation in crop markets has made in Kenya, and concludes that such policies are no panacea for low agricultural incomes.

REMOBILISING THE WORKFORCE FOR ‘WORLD WAR COVID’: A two-imperatives approach

Richard Baldwin         
13 April 2020

Governments are thinking about ways to exit the Covid containment policies currently in place. While ‘exit’ is too optimistic of a word, the necessity is clear. Vox founder Richard Baldwin argues that we should not think of this as a ‘dollars versus deaths’ trade-off, but rather as a constrained optimisation with two conflicting imperatives: keeping containment stringent enough to achieve the medical imperative, but lax enough to avoid overstretching citizens’ tolerance. Remobilising the workforce is a key element of the latter.  

THE IMPACT OF COVID-19 ON CHRONIC HEALTH IN THE UK: A long-term economic downturn will affect thousands

Katharina Janke, Kevin Lee, Carol Propper, Kalvinder Shields, Michael A Shields          
13 April 2020

A study by Carol Propper and colleagues examines the effect of the Covid-19 induced economic downturn on the incidence of long-term chronic ill health in the UK. The results show that deteriorating conditions affect one in three people of working age. The findings suggest that the economic downturn could result in around 900,000 more people of working age developing a long-term chronic condition. The impact will be worse in areas that already have higher unemployment. 

PANDENOMICS – POLICY-MAKING IN A POST-PANDEMIC WORLD

Mark Cliffe            
13 April 2020

Mark Cliffe, Global Head of the New Horizons Hub at ING Group, predicts that when the Covid-19 pandemic is over, policy-makers will face a transformed landscape. Even radical new interventions will not prevent structural economic damage, and the combination of divisive nationalism, increased risk aversion and the need to build resilience will weigh on economic growth. But resilience will also call for accelerated use of digital technology and harnessing social pressure for more sustainable and social approaches will present opportunities for smarter, more far-sighted governments and institutions.

MICRO/MACRO INSIGHTS ON THE ECONOMICS OF CORONAVIRUS: Extreme risk management in France 

Christian Gollier, Stephane Straub            
13 April 2020

COVID-INDUCED ECONOMIC UNCERTAINTY AND ITS CONSEQUENCES

Scott Baker, Nicholas Bloom, Steven Davis, Stephen Terry             
13 April 2020

Writing at Vox, Nicholas Bloom and colleagues predict a year-on-year contraction in US real GDP of nearly 11% as of 2020 Q4. About 60% of the forecasted output contraction is estimated to be due to Covid-induced uncertainty. 

The authors track and characterise the massive increase in uncertainty using stock market volatility measures, newspaper-based measures of economic uncertainty and survey questions about perceived business-level uncertainty to quantify the enormous increase in economic uncertainty over the past weeks. They the feed these Covid-induced uncertainty shocks into a model of disaster effects. 

THE UNITED STATES IS RELYING HEAVILY ON OTHER COUNTRIES FOR ESSENTIAL MEDICAL EQUIPMENT: Policies must increase domestic production

Fernando Leibovici, Ana Maria Santacreu, Makenzie Peake              
13 April 2020

The Covid-19 pandemic is creating a massive shortage of protective medical equipment and equipment needed to treat infected patients in the United States. Writing at Vox, economists from the Federal Reserve Bank of St Louis advocate urgent policy reform to boost the country’s domestic production of these essential goods, the supply of which is relying heavily on other countries also affected by Covid-19. 

WHY TESTING A REPRESENTATIVE SAMPLE OF THE POPULATION MUST BE DONE NOW

Andrea Galeotti, Paolo Surico              
08 April 2020

FINANCING THE COVID-19 DEFICIT FOR DEVELOPING & EMERGING COUNTRIES: Beware of copycat policy-making

Tohid Atashbar              
13 April 2020

There is a growing trend as well as increasing public pressure in developing or emerging economies to follow the US and EU-led approaches to dealing with the coronavirus pandemic, without considering local economic settings. This imitation may lead to a worsening of the situation, especially if the pandemic were to last for a longer period of time. 

Writing at Vox, Tohid Atashbar proposes a framework for a safer policy-making approach, especially for countries with a tighter policy space. Policy responses should be evaluated based on how the resources are generated and spent using a set of pre-defined criteria. 

SUPPORTING PEOPLE AND COMPANIES TO DEAL WITH COVID-19: Options for an immediate employment and social policy response

Stefano Scarpetta, Monika Queisser, Andrea Garnero, Sebastian Königs               
12 April 2020

A new study by OECD economists highlights the employment and social policy measures that governments can take to soften the pandemic’s blow for workers, households and businesses. 

Many of the challenges posed by the unfolding Covid-19 crisis are unprecedented; they will require a package of unprecedented policies in response. Containing the pandemic while protecting people from it remains the top policy priority, but disrupted supply chains, containment measures that limit economic and social interactions, and falling demand also put people’s jobs and livelihoods at risk. 

THE DURATION OF RELIEF CHEQUES: Too short to be effective?

YiLi Chien            
12 April 2020

Relief cheques are part of the plan adopted by the US Congress to help households to weather the Covid-19 pandemic. Writing at Vox, YiLi Chien finds that relief cheques are not likely to last very long –  four to eight weeks. Extending the coverage of unemployment insurance could be more effective in addressing income shortages.

ESTIMATING NEXT QUARTER’S US UNEMPLOYMENT RATE

Miguel Faria e Castro            
11 April 2020

A study by Miguel Faria e Castro estimates what the unemployment rate may be at the end of the second quarter of 2020, by combining different types of statistics on industry and occupation composition. It finds that over 52 million people could be unemployed, with a 32.1% unemployment rate.

POLICY SUGGESTIONS FOR REGULATORY CONVERGENCE AND MARKET CONFIDENCE

Rodrigo Coelho, Fernando Restoy, Raihan Zamil            
11 April 2020

A study by economists from the Bank for International Settlements (BIS) identifies three main sources of regulatory fragmentation in the post-Basel III era and proposes policy measures to reduce excessive discrepancies in the application of global banking rules. Maintaining trust in banks’ financial health is crucial in periods of economic and financial disruption – such as the Covid-19 pandemic.

THE ‘BURDEN’ OF SWISS PUBLIC DEBT: Lessons from research and options for the future

Cédric Tille            
11 April 2020

The adoption of a debt brake rule in the late 1990s has led to a reduction in Swiss government debt. In fact, Switzerland seems to have a problem of too little debt. Writing at Vox, Cédric Tille argues that instead of reducing its debt level further, which in the current configuration amounts to investing at a negative interest rate, Switzerland has several more appealing options. 

Read the full CEPR Policy Insight here. 

MITIGATING THE WORK-SECURITY TRADE-OFF WHILE REBOOTING THE ECONOMY 

Tito Boeri, Alessandro Caiumi, Marco Paccagnella             
09 April 2020

THE LARGE AND UNEQUAL IMPACT OF COVID-19 ON WORKERS: Evidence from the UK and the United States 

Abigail Adams-Prassl, Teodora Boneva, Marta Golin, Christopher Rauh             
08 April 2020

The spread of Covid-19 has already had a large negative impact on labour supply and earnings of workers in many countries. In this study, Abigail Adams-Prassl and colleagues leverage newly collected data from the United States and the UK to show that these negative consequences are particularly harsh for younger workers, those with unstable employment relationships and lower labour income. The evidence calls for a quick response from governments in the form of stimulus and labour income replacement packages, and a robust plan to ensure that the younger generation are not permanently disadvantaged.

DISABILITY INSURANCE ERROR RATES AND GENDER DIFFERENCES: Evidence from the United States

Hamish Low, Luigi Pistaferri             
08 April 2020

THE LONGER-RUN ECONOMIC CONSEQUENCES OF PANDEMICS: Hope for Covid-19

Òscar Jordà, Sanjay R. Singh, Alan M. Taylor             
08 April 2020

The Covid-19 pandemic is having immediately visible effects on economic activity. The rapid contraction in economic activity, the collapse of trade, and the dramatic increase in the unemployment rate are without precedent. But pandemics also have less well-understood, longer-run effects on the natural rate of interest – a critical economic barometer and policy marker.

Writing at Vox, Òscar Jordà, Sanjay Singh and Alan Taylor reveals how historical data since the 14th century on the 15 largest pandemics suggest 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. There are still reasons for guarded optimism about the final death toll of Covid-19 and thus its ultimate economic impact. Perhaps this time may be different.

THE CORONAVIRUS PANDEMIC AND US CONSUMPTION

John Muellbauer              
08 April 2020

The coronavirus pandemic has triggered unprecedented shocks to both supply and demand, raising important questions about the impact on US consumer spending. In the United States, consumption comprised as much as 70% of GDP in 2019. Typically, consumption is less volatile than income. But as John Muellbauer argues, it is now likely to fall even more than household income. 

One reason is that part of the negative shock originates in disruption to consumption itself. Another comes from the jump in income insecurity as reflected in an unprecedented rise in the unemployment rate. Other reasons include the fall in asset prices and a sharp contraction in credit availability. A plausible scenario from the analysis suggests that US real consumer spending in the second quarter of 2020 could fall by around 20%, if household labour income falls by 16%.