This week from CEPR: October 22

Thursday, October 22, 2020

Highlights from some of the latest research reports published in the Centre for Economic Policy Research (CEPR) network’s long-running series of discussion papers, as well as some other recent CEPR publications.

Also, links to some of the latest columns on Vox, the Centre’s policy portal, which provides ‘research-based policy analysis and commentary from leading economists’.

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    • New Discussion Papers


    • WOMEN SUFFER SLIGHLTY SMALLER NEGATIVE LABOUR MARKET OUTCOMES DUE TO COVID-19, SIZEABLE NUMBER OF MEN BECOME PRIMARY CARERS: Evidence from the United Kingdom     

    WORK, CARE AND GENDER DURING THE COVID-19 CRISIS
    Claudia Hupkau, Barbara Petrongolo        
    CEPR DP No. 15358 | October 2020

    A new CEPR study by Claudia Hupkau and Barbara Petrongolo explores the impacts of the Covid-19 pandemic crisis and associated restrictions to economic activity on paid and unpaid work for men and women in the United Kingdom. Among the findings: 

    • In the labour market, men and women experience similar employment losses or furloughing in the UK. 
    • If anything, women suffered smaller losses, experiencing slightly smaller changes in hours and earnings. 
    • In the household, however, women provide on average for about 60% of increased childcare needs, implying a widening of pre-existing inequalities of parental roles.
    • There has been a reversal of traditional gender roles in a sizeable share of UK households, in which fathers took the role of primary childcare providers.

    These distributional consequences of the pandemic may be important to understand its inequality legacy over the longer term.

    Figure 4: Gender gaps in childcare hours, before and during Covid-19

    Notes: The bars show usual weekly hours spent on childcare and home schooling before Covid-19 (2014-15) and during Covid-19 (April-May 2020). Sample: men and women living in couple, with children aged 15 and below. Source: UK Time Use Survey 2014-15 and Covid-19 Study, waves one and two.


    • THE RISE OF FINTECH AND BIG TECH CREDIT: New global analysis   

    FINTECH AND BIG TECH CREDIT: A new database
    Giulio Cornelli, Jon Frost, Leonardo Gambacorta, Raghavendra Rau, Robert Wardrop, Tania Ziegler        
    CEPR DP No. 15357 | October 2020

    A new CEPR study by Leonardo Gambacorta and colleagues documents the recent growth of fintech credit and big tech credit, sometimes in partnership with traditional financial institutions. The study shows  that both forms of credit have risen dramatically since 2013, but that since 2018, big tech credit has overtaken fintech credit in total size. Among the findings: 

    • Fintech and big tech platforms have expanded their lending around the world. 
    • The flow of these new forms of credit reached USD 223 billion and USD 572 billion in 2019, respectively. 
    • China, the United States and the United Kingdom are the largest markets for fintech credit. 
    • Big tech credit is growing fast in China, Japan, Korea, Southeast Asia and some countries in Africa and Latin America. 
    • Cross-country panel regressions show that such lending is more developed in countries with higher GDP per capita (at a declining rate), where banking sector mark-ups are higher and where banking regulation is less stringent. 
    • Fintech credit is larger where there are fewer bank branches per capita. 
    • Fintech and big tech credit are more developed where the ease of doing business is greater, and investor protection disclosure and the efficiency of the judicial system are more advanced, the bank credit-to-deposit ratio is lower and where bond and equity markets are more developed. 

    Overall, alternative credit seems to complement other forms of credit, rather than substitute for them.

    Global big tech credit is booming, overtaking fintech credit:


    • PREPARING FOR A PANDEMIC: Spending dynamics and panic buying during the Covid-19 first wave

    FINANCE AND TECHNOLOGY: What is changing and what is not
    Áureo De Paula, Martin O'Connell, Kate Smith       
    CEPR DP No. 15371 | October 2020

    A new CEPR study by Áureo De Paula, Martin O'Connell and Kate Smith provides new evidence on consumer purchase dynamics and hoarding during the early phase of the Covid-19 pandemic in the United Kingdom. Among the findings: 

    • There was a large spike in spending for storable products, such as food staples and household supplies, in the days before lockdown. 
    • Demand increases were concentrated in 30 of 138 product categories, e.g. soap, soup, canned goods and dried pasta. 
    • Households in all socioeconomic groups exhibit unusually high demand pre-lockdown, but there is a clear gradient, with the largest demand spikes for wealthier households. 
    • Although stories of people purchasing extreme amounts received a lot of attention, higher aggregate demand was mainly driven by more households than usual choosing to buy storable products, with only small increases in average quantities bought on a given trip.
    • Temporary limits on the number of units per transaction, introduced following the demand spike, are therefore unlikely to lead to the avoidance of stock-outs. 

    Given rapidly increasing case numbers in the ongoing second wave, and the spectre of further national lockdowns, this study provides timely evidence for preparing for a future demand spike.



    GLOBALISATION AND PANDEMICS

    Pol Antràs, Stephen Redding, Esteban Rossi-Hansberg     
    15 October 2020

    Throughout human history, globalisation and pandemics have been closely intertwined. A study by Pol Antràs, Stephen Redding, Esteban Rossi-Hansberg introduces a theoretical framework to analyse the relationship between the two. Among the findings: 

    • Deepening global integration can either increase or decrease the range of parameters for which a pandemic occurs. 
    • For countries sufficiently similar to one another, globalisation increases the prevalence and severity of pandemics; for countries sufficiently different from one another, it reduces them. 
    • When agents internalise the threat of infection, trade flows (even as a share of output) are largely reduced but recover quickly after the pandemic.
      

    PULLING TOGETHER OR PULLING APART: EU trade and development policy

    Peter Holmes, Julia Magntorn Garrett, Jim Rollo    
    15 October 2020

    The global economy appears to be shifting from a rules-based to a power-based trading system. Writing at Vox, economists from the University of Sussex argue that a high degree of coherence in the values projected by its member states can help the European Union harness its soft power to promote its policy objectives externally. 

    Using a similarity index to explore the coherence of trade-related aid objectives between the institutions of the EU and four key member states, it finds what the authors call a ‘positive complementarity’, whereby EU institutions and the member states currently promote similar but not identical aims.


    PANDEMICS INCREASE INEQUALITY: A historical overview

    Guido Alfani    
    15 October 2020

    Historical evidence suggests that inequality increased in the aftermaths of most major pandemics in Europe over the past few centuries - expect after the Black Death of the 14th century. A study by Guido Alfani suggests that inequality and poverty are likely to increase in the aftermath of the Covid-19 crisis. Governments worldwide need to be prepared to manage, and possibly to prevent, the social crisis that seems sure to follow the current health crisis.


    A PROPOSAL FOR AN ASIAN DIGITAL COMMON CURRENCY 

    Taiji Inui, Wataru Takahashi, Mamoru Ishida   
    16 October 2020

    Central bank digital currencies are currently being considered by many central banks around the world. Writing at Vox, Taiji Inui, Wataru Takahashi and Mamoru Ishida call for the introduction of an Asian digital common currency as a multilateral synthetic currency comparable to the euro. 

    The study argues that the benefits it would bring – such as a deepening cooperation within multilateral frameworks and the protection of the rights of small and medium-sized countries – are greater than the disadvantages of inefficiencies in multilateral frameworks. 


    MANAGING POST-COVID SOVEREIGN DEBTS IN THE EURO AREA

    Stefano Micossi     
    20 October 2020

    As the world comes to terms with a post-Covid reality, the euro area must confront its growing fiscal and sovereign debts. Writing at Vox, Stefano Micossi argues that common euro area policies are justified in order to address sovereign debt externalities and risks to financial stability. He considers a mechanism involving large transfers of euro area sovereigns from the ECB to the ESM as a possible way forward.

    First, it would over time create suitable conditions for unwinding the large increase in the ESCB balance sheets after quantitative easing policies come to an end. Second, by bringing to the market a large supply of new high-quality assets, the scheme is likely to relieve the downward pressure on interest rates in the bond markets of ‘safe’ (low debt) euro area countries, opening the way to interest rate increases there even with present ECB policies.


    EXPOSURE TO FOX NEWS HINDERED SOCIAL DISTANCING IN THE UNITED STATES 

    Maxim Ananyev, Michael Poyker, Yuan Tian     
    20 October 2020


     

    New findings suggest there is a strong corelation between exposure to Fox News, smaller reductions in distance travelled, and less inclination to heed public health guidelines. Political polarisation and the politicisation of science thus appear to have harmed containment efforts in the United States.

    A new study by Maxim Ananyev, Michael Poyker and Yuan Tian investigates how the conservative media has affected containment efforts in the country during the pandemic, using smartphone data to measure mobility and social distancing combined with data on the historical line-up of cable channels as the source of variation in viewing habits.  


    RIDESHARING DURING THE COVID-19 PANDEMIC: Usage, prices, and discrimination 

    Marc Ivaldi, Emil Palikot     
    16 October 2020

    Sharing a ride with a stranger during a pandemic involves a health hazard. A new study by Marc Ivaldi and Emil Palikot studies whether drivers price such risks, and how perceived risks shape attitudes towards ethnic minorities. 

    Using data collected from a ridesharing platform in France, it finds a correlation between geographical variation in the intensity of Covid-19 outbreaks, the use of ridesharing, and the level of prices. The data also show a simultaneous increase in the number of ethnic minority passengers and signs of discrimination against passengers from minority communities.


    REGIONAL INEQUALITIES AND THE WEST-EAST DIVIDE IN TURKEY SINCE 1880

    Gunes Aşik, Ulaş Karakoç, Sevket Pamuk    
    17 October 2020

    Unlike for developed countries, only a limited number of studies exist on the long-term evolution of regional inequalities in today’s developing countries. 

    With the help of a novel dataset, a study by Gunes Aşik, Ulaş Karakoç and Sevket Pamuk examines the evolution of regional income inequality within present-day borders of Turkey. The authors find an inverse U-shaped pattern for regional disparities since 1880, with a peak at around 1950 (although the East lagged further behind until the end of the 20th century). 

    A combination of causes led by geography, including proximity to Europe, structural change, industrialisation and agglomeration economies, as well as ethnic conflict and demographic movements, appear to be behind this pattern.


    ALCOHOL PURCHASES ARE STRONGLY AFFECTED BY LOCAL ENVIRONMENT: Evidence from the United States  

    Marit Hinnosaar, Elaine Liu      
    18 October 2020

    How much does regulation and other location-specific factors explain regional differences in alcohol consumption? A study by Marit Hinnosaar and Elaine Liu analyses changes in alcohol consumption when households move from one state to another in the United States. 

    The study finds that about two thirds of the regional differences in alcohol consumption can be attributed to differences in regulation and other location-specific effects, as opposed to household specific characteristics and past experiences. Movers adjust their alcohol purchases towards the destination average as soon as they move. These results suggest that alcohol availability accounts for a large share of the location-specific effect.


    ECONOMIC CONSEQUENCES OF COVID-19: A counterfactual multi-country analysis

    Alexander Chudik, Kamiar Mohaddes, M. Hashem Pesaran, Mehdi Raissi, Alessandro Rebucci   
    19 October 2020

    The Economic consequences of Covid-19 will be long lasting, with no country escaping its impact regardless of their mitigation strategy, although China and 'Emerging Asia' will fare better for in the short term. 

    A new study by Kamiar Mohaddes and colleagues uses a  ‘threshold-augmented multi-country econometric model’ to help quantify the impact of the Covid-19 shock along several dimensions. The study warns that no economy is immune from the negative consequences of Covid-19 in an interconnected global economy, with non-Asian emerging markets particularly vulnerable.

    These findings highlight the importance of a comprehensive and a coordinated cross-country policy response to the pandemic. 


    LOCKDOWNS SIGNIFICANTLY AFFECTED VOTING BEHAVIOUR DURING THE COVID-19 PANDEMIC: Evidence from France

    Tommaso Giommoni, Gabriel Loumeau      
    19 October 2020

    Writing at Vox, Jay Hyun, Daisoon Kim and Seung-Ryong Shin present evidence that firms with higher global connectedness and market power are more resilient to domestic pandemic shocks. 

    While global production and export networks expose firms to foreign pandemic shocks, they potentially make firms less susceptible to domestic pandemic shocks through diversification of suppliers and markets. In addition, higher market power could provide buffers by allowing bigger margins of adjustment. 
     


    QUANTITATIVE EASING POLICIES AND EXCHANGE RATES: Analysis from European Central Bank economists

    Luca Dedola, Andreas Georgiadis, Johannes Gräb, Arnaud Mehl      
    21 October 2020

    Since the onset of the Global Crisis in 2008, central banks around the world have rolled out a broad array of quantitative easing measures, resulting in dramatic expansions of their balance sheets. 

    A study by economists at the European Central Bank reveals that that these policies have had large and persistent effects on the dollar/euro exchange rate, mainly through shifts in exchange rate risk and short-term interest rates between the two currencies. Changes in expectations about the future monetary policy stance also affect the response of the dollar/euro exchange rate to quantitative easing. 


    THE GREAT DEPRESSION, BANKING CRISES, AND KEYNES' PARADOX OF THRIFT

    Victor Degorce, Eric Monnet     
    21 October 2020

    The surge in savings following the 2008-2009 Global Crisis and the recent pandemic have rekindled the interest of economists and policymakers in the paradox of thrift, formulated by Keynes in the 1930s. Subsequent research on the Great Depression of the 1930s, however, has not addressed the link between precautionary savings and growth. 

    Using data on deposits in savings institutions of 22 countries, Victor Degorce and Eric Monnet study the fate of savings during the Great Depression and show that Keynes' intuition was right. Banking crises had an impact on economic growth not only through the direct lending channel, but also indirectly through an increase in precautionary savings. This bears important lessons for today.

    WHY IS THERE A STAGNATION OF MARKUPS AND A NON-EXISTENCE OF SUPERSTAR FIRMS IN JAPAN? 

    Tsuyoshi Nakamura, Hiroshi Ohashi     
    20 October 2020

    Recent studies have shown average firm markups increasing in the United States and other developed countries, driven by a small share of ‘superstar’ firms which have expanded their market shares and consolidated technological advantages. 

    A study by Tsuyoshi Nakamura and Hiroshi Ohashi uses firm-level data to show that similar trends in markups are missing in Japan. In addition, intangible capital investments do not boost market power in the country. Instead, a strong predictor of average markup in Japan is firm age, with older firms enjoying significantly higher market power. 

    THE FED’S NEW POLICY FRAMEWORK: A major improvement but more can be done

    Gauti Eggertsson, Sergey Egiev, Alessandro Lin, Josef Platzer, Luca      
    21 October 2020

    The Federal Reserve has recently announced a new policy strategy of average inflation targeting. Responding at Vox, Economists from Brown University argue that while this is unambiguously a positive step, it may not – under all circumstances – subscribe to a sufficiently aggressive make-up strategy when the zero lower bound is binding. This is particularly likely to be the case if episodes of high unemployment are not associated with material fall in inflation, a scenario that seems empirically relevant. 

    The authors suggest alternatives that could do better, such as a targeting rule that treats the dual objective of the Federal Reserve in a symmetric way, or one that aims at minimising cumulative deviation of nominal GDP from trend.



    THE BLACK DEATH

    Mark Koyama interviewed by Tim Phillips,16 October 2020

    Seven hundred years ago the worst pandemic in history killed almost half the population of Europe and the Middle East. Mark Koyama tells Tim Phillips about the centuries-long economic impact of the Black Death.