This paper studies optimal lockdown policies in a dynamic economy without government commitment. A lockdown imposes a cap on labor supply, which lowers economic output but improves health prospects. A government would like to commit to limit the extent of future lockdowns in order to increase investment by supporting a more optimistic economic outlook. However, such a commitment may not be credible since investment decisions are sunk at the time when the government decides on lockdowns. Rules that limit a government's future policy discretion can improve the efficiency of lockdowns, even in the presence of noncontractible information.
Yared, P and C Moser (2020), ‘Pandemic Lockdown: The Role of Government Commitment‘, COVID Economics 17, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-17#392514_392893_391030
We use high-frequency Google search data, combined with data on the announcement dates of non-pharmaceutical interventions (NPIs) during the COVID-19 pandemic in U.S. states, to isolate the impact of NPIs on unemployment in an event-study framework. Exploiting 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, we analyze how Google searches for claiming unemployment insurance (UI) varied from day to day and across states. We describe a set of assumptions under which proxy outcomes (e.g., Google searches) can be used to estimate the causal parameter of interest (e.g., share of UI claims caused by NPIs) when data on the outcome of interest (e.g., daily UI claims) are limited. Using this method, we quantify the share of overall growth in unemployment during the COVID-19 pandemic that was directly due to each of these NPIs. We find that between March 14 and 28, 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.
Prinz, D and E Kong (2020), ‘The Impact of Shutdown Policies on Unemployment During a Pandemic‘, COVID Economics 17, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-17#392514_392893_390445
The literature documents a strong positive association between social capital and health. Â However, because personal social interactions are implicated in the spread of viral infections, areas with high levels of social capital may be especially at risk during the COVID-19 pandemic. Social capital comprises not only a cognitive component (i.e. norms of reciprocity and trust) but also a relational component (i.e. social relationships and networks). We use data from counties in the United States to provide evidence on the extent to which community level responses such as reducing mobility to comply with social distancing advice and regulations are related with social capital. In line with predictions we find that individuals reduced mobility earlier and to a higher degree in counties with high levels of social capital than in counties with low levels of social capital.
Borgonovi, F and E Anieu (2020), ‘Bowling Together by Bowling Alone: Social Capital and Covid-19‘, COVID Economics 17, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-17#392514_392893_390446
The covid-19 crisis has led to a sharp deterioration in firm and bank balance sheets. The government has responded with a massive intervention in corporate credit markets. We study equilibrium dynamics of macroeconomic quantities and prices, and how they are affected by this policy response. The interventions prevent a much deeper crisis by reducing corporate bankruptcies by about half and short-circuiting the doom loop between corporate and financial sector fragility. The additional fiscal cost is zero since program spending replaces what would otherwise have been spent on financial sector bailouts. An alternative intervention that targets aid to firms at risk of bankruptcy prevents more bankruptcies at much lower fiscal cost, but only enjoys marginally higher welfare. Finally, we study longer-run consequences for firm leverage and intermediary health when pandemics become the new normal.
Landvoigt, T, S Van Nieuwerburgh and V Elenev (2020), ‘Can the Covid Bailouts Save the Economy?‘, COVID Economics 17, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-17#392514_392893_391031
Epidemiological models assume gravity-like interactions of individuals across space without microfoundations. We combine a simple epidemiological framework with a dynamic model of individual location choice. The model predicts that flows of people across space obey a structural gravity equation. By means of an application to data from Great Britain we show that our structural-gravity framework: provides a rationale for quarantines; offers a clear mapping from observed geography to the spread of a disease; and makes it possible to evaluate the welfare impact of (expected and unexpected) mobility restrictions in the face of a deadly epidemic.
Zymek, R and A Cuñat (2020), ‘The (Structural) Gravity of Epidemics‘, COVID Economics 17, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-17#392514_392893_390447
The rapid and dramatic diffusion of the Covid-19 epidemic in Italy was tackled by the Italian government with social distancing measures and with the suspension of all economic activities, except "essential" sectors. A lively policy debate on more refined criteria to choose what activities to allow and to suspend in the future led INAIL (National Institute for Insurance against Accidents at Work) to develop a measure of the risk of contagion in the workplace. In this paper we exploit this novel source of information about the risk of contagion in the workplace to study, for the first time, the crossindustry relationship between the estimated risk of contagion at work and the adoption of robots, in order to test the hypothesis that robotisation may facilitate social distancing and lower the risk of contagion. The analysis, which includes various controls of possible automation-related confounding factors and addresses possible issues of endogeneity, provides evidence that industries employing more robots per worker in production tend to exhibit a lower risk of contagion due to Covid-19. Results and policy implications for the selection of suspension criteria are discussed.
Fracasso, A, S Traverso and M Caselli (2020), ‘Mitigation of risks of Covid-19 contagion and robotisation: Evidence from Italy‘, COVID Economics 17, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-17#392514_392893_390448
The effects of the Covid 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, according to most forecasts. Most activities were reopened on May 4th, although within strict social distancing and health safety guidelines. In this paper we argue that a targeted exit from the lockdown could have been implemented instead. Â 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, Â would have reduced the risks of a second wave of contagion, still reactivating gross output and jobs to a similar extent of the general reopening actually implemented. In this study we propose a methodology to identify production activities for which total or partial closures or reopening would have the greatest impact on the country's GDP, output and employment, using input output tables and network centrality measures in production chains. Â The administrative lockdown implemented up to May 4th, Â if kept for one year, would wipe out 52% of GDP. The targeted reopening proposed here would reduce this negative impact by 70%. Our methodology could be applied also in the in the unfortunate event of a new wave of contagion and a new targeted lockdown.
Pozzolo, A, A Lanza, G Calzolari, A Dossena and G Barba Navaretti (2020), ‘In and out lockdowns: An approach to identify production-sectors centrality‘, COVID Economics 17, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-17#392514_392893_390449
This paper presents a new data set collected on representative samples across 6 countries: China, South Korea, Japan, Italy, the UK and the four largest states in the US. The information collected relates to work and living situations, income, behavior (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 US, it is also representative for race. The data were collected in the third week of April 2020. The data set could be used for multiple purposes, including calibrating certain parameters used in economic and epidemiological models, or for documenting the impact of the crisis on individuals, both in financial and psychological terms, and for understanding the scope for policy intervention by documenting how people have adjusted their behavior as a result of the Covid-19 pandemic and their perceptions regarding the measures implemented in their countries. The data is publicly available.
Van den Broek-Altenburg, E, E Tripodi, N Papageorge, J Jamison, S Choi and M Belot (2020), ‘Six-Country Survey on Covid-19‘, COVID Economics 17, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-17#392514_392893_390450