We show that the COVID-19 pandemic brought house price and rent declines in city centers, and price and rent increases away from the center, thereby flattening the bid-rent curve in most U.S. metropolitan areas. Across MSAs, the flattening of the bid-rent curve is larger when working from home is more prevalent, housing markets are more regulated, and supply is less elastic. Housing markets predict that urban rent growth will exceed suburban rent growth for the foreseeable future.
Van Nieuwerburgh, S, V Mittal, J Peeters and A Gupta (2021), ‘Flattening the Curve: Pandemic-Induced Revaluation of Urban Real Estate‘, COVID Economics 69, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-69#392514_392945_391064
The business restrictions introduced during the Covid-19 pandemic greatly affected the labour market. However, quantifying their costs is not trivial as local policies affect neighbouring areas through spillovers. Exploiting the U.S. local variation in restrictions and commuting, we estimate the causal direct and spillover impacts of lockdowns. Spillovers alone account for 10-15% of U.S. job losses. We corroborate these results with causal evidence for a consumption-based mechanism: shops whose consumers reside in neighbouring areas under lockdown experience larger employment losses, even if no local restriction is in place. Accounting for spillovers implies larger lockdownsâ€™ total effects, but smaller direct ones.
Tochev, T and G Guaitoli (2021), ‘Do localised lockdowns cause labour market externalities?‘, COVID Economics 69, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-69#392514_392945_390726
This paper investigates the likelihood of corporate insolvency and the potential implications of debt overhang of non-financial corporations induced by economic shock associated with the outbreak of COVID-19. Based on simple accounting models, it evaluates the extent to which firms deplete their equity buffers and increase their leverage ratios in the course of the COVID-19 crisis. Next, relying on regression analysis and looking at the historical relationship between firmsâ€™ leverage and investment, it examines the potential impact of higher debt levels on investment during the recovery. Against this background, the discussion outlines a number of policy options to flatten the curve of crisis-related insolvencies, which could potentially affect otherwise viable firms, and to lessen the risk of debt-overhang, which could slow down the speed of recovery.
Sakha, S, M McGowan, G Franco, D Dlugosch, L Demmou and S Calligaris (2021), ‘Insolvency and debt overhang following the COVID-19 outbreak: assessment of risks and policy responses‘, COVID Economics 69, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-69#392514_392945_390727
For any infectious disease, including the Covid-19 pandemic, timely, accurate epidemic figures are necessary for informed policy. In the Covid-19 pandemic, mismeasurement can lead to tremendous waste, in health or economic output. "Random" testing is commonly used to estimate virus prevalence, reporting daily positivity rates. However, since testing is necessarily voluntary, all "random" tests done in the field suffer from selection bias. This bias, unlike standard polling biases, goes beyond demographical representativeness and cannot be corrected by oversampling (i.e. selecting people without symptoms to test). Using controlled, incentivized experiments on a sample of all ages, we show that people who feel symptoms are up to 42 times more likely to seek testing. The testing propensity bias leads to sizeable prevalence bias: even under costless testing, test positivity can inflate true prevalence fivefold. The inflation factor varies greatly across time and age groups, making intertemporal and between nation comparisons misleading. We validate our results using the largest population surveillance studies of Covid-19 in England, and indeed find that the bias varies intertemporally from 4 to 23 times. We present calculations to debias positivity, but importantly, suggest a parsimonious approach to sampling the population that bypasses the bias altogether. Estimates are both real-time and consistently close to true values. Our results are relevant to any epidemic, besides Covid-19, where carriers have informative beliefs about their own status.
Vandoros, S, A Velias and S Georganas (2021), ‘On the Measurement of Disease Prevalence‘, COVID Economics 69, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-69#392514_392945_390728
The surge of the COVID-19 pandemic urged regulators all over the world to deploy measures aimed at rarefying social contacts to contain the spread of the pandemic, the so called social distancing policies. Social distancing depresses employment and hinders economic activity. As shocks unevenly spill through the network of sectors, social distancing has unclear aggregate implications. We adopt a multi-sector model to explore the effect of social distancing in an economy characterized by sectoral spillovers. We focus on the Australian economy, due to the availability of granular data-sets on sectoral fluctuations and COVID-19 employment variations. We analyse two scenarios. First, we attribute the employment shock to a structural change in factor utilization and study the effect on GDP for varying temporal windows. We obtain a drop ranging between 6.6% (20-week lockdown) and 28% (1-year lockdown). Second, we evaluate the short-run effect of the observed employment shocks on sectoral value added growth. Several up- stream sectors are subject to larger losses in value added than predicated by the observed change in employment. In fact, for several of these sectors, employment change in the relevant period is actually positive. These result can be attributed to a compounded network effect.
Giovannetti, A, V Panchenko and M Anufriev (2021), ‘Social Distancing Policies and Intersectoral Spillovers: The Case of Australia‘, COVID Economics 69, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-69#392514_392945_390729
The Netherlands has recently closed down primary and secondary education in response to the covid-19 pandemic. Using a SIR (Susceptibles-Infected-Recovered) model for the Netherlands, this closure is shown to be counter-productive (as it increases future vulnerability to infection) and hard to reverse (since the increased vulnerability demands continuation). Though the rise of B117 (â€œthe British versionâ€) has been used to argue for school-closure, B117 increases the negative effects of school-closure. School-closure has been based on a misunderstanding of the dynamics in a multi-group SIR model. Furthermore, immunity by prior infection is shown to provide a larger contribution to ending the pandemic than vaccination. Finally, a cost-benefit analysis shows school-closure to be extremely costly. Behavioural economics explains why decision making and the public debate are so distorted, to the detriment of youngsters.
Teulings, C (2021), ‘School-closure is counterproductive and self-defeating‘, COVID Economics 69, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-69#392514_392945_390730