We investigate the link between the Great Influenza Pandemic of 1918 and regional economic growth in Italy. The pandemic caused 600,000 deaths in Italy, a death rate of about 1.2%. We find 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. We find limited evidence of mechanisms that may uncover long-term effects of the pandemic, such as human capital accumulation and industrialization. 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 our estimates as indicative of an upper bound of the transitory adverse effect of pandemics on local economic growth.
Jappelli, T and M Carillo (2020), ‘Pandemic and Local Economic Growth: Evidence from the Great Influenza in Italy‘, COVID Economics 10, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-10#392514_392886_390401
The paper presents early research on problems that make the use of the basic SIR-model of epidemiology difficult for short- and medium-run policy. The model essentially generalizes the simple exponential model in two respects. First, it considers the structure of the infectious population in more detail and introduces the concept of the "cohort composition kernel" that generalizes the aggregate transmission function and renders the transmission model non-recursive. Second, it shows how policy measures such as testing, social distancing, or quarantine rules can affect this kernel and how this can provide estimates for the impact and lag of nonpharmaceutical policy interventions.
von Thadden, E (2020), ‘A simple, non-recursive model of the spread of Covid-19 with applications to policy‘, COVID Economics 10, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-10#392514_392886_390402
As a response to the COVID-19 pandemic, governments globally closed down major parts of their economies potentially plunging a vast majority of their firms into a liquidity crisis. Using a novel dataset of daily credit line drawdowns at the firm-loan-level, we study in a descriptive exercise the resulting â€œdash for cashâ€ among firms and how the stock market priced firms differentially based on liquidity. In particular, we show that the U.S. stock market rewarded firms with access to liquidity through either cash or committed lines of credit from banks. AAAA rated firms, i.e., high-quality investment-grade firms, issued bonds in public capital markets, particularly after the Federal Reserve Bank initiated its corporate bond buying program. In contrast, bond issuances of BBB-rated firms, i.e., 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. We document that consistent with the risk of becoming a fallen angel, this â€œdash for cashâ€ has been driven by the lowest-quality BBB-rated firms. The risk of such precautionary drawdowns of credit lines remains an important consideration for stress-test based assessments of banking sector capital adequacy
Steffen, S and V Acharya (2020), ‘The risk of being a fallen angel and the corporate dash for cash in the midst of COVID‘, COVID Economics 10, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-10#392514_392886_391021
To predict the effects of the 2020 U.S. â€˜CARESâ€™ act on consumption, we extend a model that matches responses of households to past consumption stimulus packages. The extension allows us to account for two novel features of the coronavirus crisis. First, during the lockdown, many types of spending are undesirable or impossible. Second, some of the jobs that disappear during the lockdown will not reappear when it is lifted. We estimate that, if the 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.
White, M, E Crawley, J Slacalek and C Carroll (2020), ‘Modeling the Consumption Response to the CARES Act‘, COVID Economics 10, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-10#392514_392886_390403
We study the epidemiology of Covid-19 using an overlapping-generations method in which successive cohorts of infectives are temporarily contagious. We use this method to estimate R0 (natural rate of contagion) and Re (effective rate of contagion) for Covid-19 in various countries and over time using data on confirmed morbidity and estimates of unconfirmed morbidity. We use these estimates to study the effect of mitigation policy on Re. We show that even in the absence of mitigation policy Re tends to decrease by week 3 of the epidemic due to endogenous social distancing. Several methods for estimating the treatment effect of mitigation policy on R suggest that mitigation policy accelerates the decrease in Re. A "Chinese crystal ball" method is proposed for projecting and simulating contagion with an empirical illustration for Israel.
Dai, X and M Beenstock (2020), ‘The natural and unnatural histories of Covid-19‘, COVID Economics 10, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-10#392514_392886_390404
The outbreak of Coronavirus named COVID-19 world has disrupted the Chinese economy and is spreading globally. The evolution of the disease and its economic impact is highly uncertain which makes it difficult for policymakers to formulate an appropriate macroeconomic policy response. In order to better understand possible economic outcomes, this paper explores seven different scenarios of how COVID-19 might evolve in the coming year using a modelling technique developed by Lee and McKibbin (2003) and extended by McKibbin and Sidorenko (2006). It examines the impacts of different scenarios on macroeconomic outcomes and financial markets in a global hybrid DSGE/CGE general equilibrium model. The scenarios in this paper demonstrate that even a contained outbreak could significantly impact the global economy in the short run. These scenarios demonstrate the scale of costs that might be avoided by greater investment in public health systems in all economies but particularly in less developed economies where health care systems are less developed and population density is high.
Mckibbin, W and R Fernando (2020), ‘The Global Macroeconomic Impacts of COVID-19: Seven Scenarios‘, COVID Economics 10, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-10#392514_392886_390405