Covid Economics | Centre de recherche sur les politiques économiques

Émission: 72

La valeur des exigences de fonds propres contracycliques: preuves tirées du COVID-19

Exigences de fonds propres contracycliques

Naz Koont et Stefan Walz

Nous évaluons les implications de l’assouplissement du ratio de levier supplémentaire pendant la perturbation du marché COVID-19 pour la composition du bilan bancaire et la provision de crédit. À notre connaissance, nous sommes les premiers à identifier de manière causale l’effet de la modification de la réglementation SLR sur les résultats au niveau des banques. Nous constatons que l’assouplissement a peut-être facilité la liquidité du marché du Trésor en permettant aux banques de détenir des stocks légèrement plus importants de bons du Trésor, et a en outre permis une expansion significative du crédit bancaire traditionnel. Nos résultats suggèrent que ce ratio de levier invariant au risque était contraignant pour les banques pendant le COVID-19, a faiblement affecté la fourniture de liquidités bancaires sur les marchés du Trésor et a fortement affecté la composition du portefeuille des banques entre les classes d’actifs, ce qui équivaut à un changement des calendriers d’offre de prêts des banques. Ainsi, nous soulignons que l’assouplissement contracyclique des contraintes uniformes d’endettement peut augmenter l’offre de crédit bancaire en période de ralentissement économique. Compte tenu de la nature contraignante du SLR, l’assouplissement de cette contrainte peut être plus efficace que d’autres mesures anticycliques pour permettre aux banques d’accorder des crédits.

L’impact du COVID-19 sur les réseaux de production mondiaux: preuves provenant d’entreprises multinationales japonaises

Réseaux de production mondiaux

En utilisant des données au niveau agrégé sur les sociétés multinationales japonaises (MNC) dans les principaux pays et régions d’accueil, cet article examine l’impact du COVID-19 sur la production mondiale et les chaînes d’approvisionnement en mettant l’accent sur l’Asie de l’Est. J’utilise le nombre de cas et de décès de COVID-19 comme mesures de l’impact de la pandémie. Je trouve que la pandémie a eu des impacts substantiels sur la performance (ventes, emploi et investissement) des multinationales japonaises et des chaînes d’approvisionnement mondiales (exportations vers le Japon et exportations vers des pays tiers) au T1-T3 2020. La Chine s’est rapidement redressée au T2 et a progressé au cours du premier trimestre 2020. T3, alors que les pays de l’Association des nations de l’Asie du Sud-Est et le reste du monde ne s’étaient toujours pas complètement rétablis au T3 2020. Il est important de noter que les politiques de verrouillage et de confinement dans les pays hôtes ont eu des effets négatifs importants sur les ventes et l’emploi des multinationales japonaises. En revanche, je n’ai pas trouvé d’effets positifs des politiques de soutien économique sur la performance des entreprises. Fait intéressant, alors que les attentes fermes et les plans d’affaires des multinationales japonaises ont été négativement affectés par la pandémie de COVID-19, leur confiance dans les entreprises a augmenté avec de fortes réponses politiques générales du gouvernement dans les pays hôtes au premier trimestre 2020.

Les impacts évolutifs de la pandémie COVID-19 sur le marché du travail: qui a été blessé et ce que nous devrions faire

Brad J. Hershbein et Harry J. Holzer

Dans cet article, nous mettons en lumière les impacts de la pandémie de COVID-19 sur le marché du travail, et comment ils ont évolué au cours de la majeure partie de l’année 2020. En nous appuyant principalement sur les microdonnées de la CPS et les données au niveau des États sur le nombre de cas de virus, la mortalité et les restrictions politiques, nous considérons une gamme de résultats en matière d’emploi – y compris les mises à pied permanentes, qui génèrent des coûts importants et durables – et la façon dont ces résultats varient selon les groupes démographiques, les professions et les industries au fil du temps. Nous examinons également comment ces modèles d’emploi varient d’un État à l’autre, en fonction du moment et de la gravité des cas de virus, des décès et des mesures de fermeture. Nous constatons que la reprise du marché du travail de l’été et du début de l’automne a stagné à la fin de l’automne et au début de l’hiver. Comme d’autres l’ont noté, nous constatons que les travailleurs à bas salaire et issus des minorités sont les plus durement touchés au départ, mais que les reprises ont varié, et pas toujours de manière cohérente, entre les Noirs et les Hispaniques. Les fermetures d’entreprises à l’échelle de l’État et d’autres restrictions à l’activité économique réduisent les taux d’emploi simultanément, mais ne semblent pas avoir d’effets persistants une fois assouplies. En revanche, les décès dus au virus – mais pas le nombre de cas – non seulement réduisent l’emploi actuel, mais produisent des dommages cumulatifs. Nous concluons avec des options politiques permettant aux États de réparer leurs marchés du travail.

Inflation avec les paniers de consommation Covid

La pandémie Covid-19 a entraîné des changements dans les modèles de dépenses qui peuvent introduire un biais important dans la mesure de l’inflation de l’indice des prix à la consommation (IPC). À l’aide de données publiques sur les transactions par carte, je mets à jour les pondérations officielles de l’IPC et recalcule l’inflation avec les paniers de consommation Covid. Je trouve que l’IPC américain a sous-estimé le taux d’inflation de Covid, car les consommateurs ont dépensé relativement plus pour la nourriture avec une inflation positive, et moins pour le transport et les catégories en déflation. Le biais a culminé en mai, lorsque l’inflation annuelle de Covid aux États-Unis était de 0,95% contre seulement 0,13% dans l’IPC et que les ménages à faible revenu connaissaient près de deux fois plus d’inflation que ceux du haut de la distribution des revenus. Je trouve des preuves similaires d’une inflation Covid plus élevée dans 12 des 19 pays supplémentaires.

COVID-19 She-Cession: La sanction de l’emploi pour s’occuper de jeunes enfants

Stefania Fabrizio, Diego B. P. Gomes et Marina M. Tavares

L’épidémie de COVID-19 et les mesures visant à contenir le virus ont provoqué de graves perturbations de l’offre et de la demande de main-d’œuvre dans le monde. Comprendre qui porte le fardeau de la crise et ce qui la motive est essentiel pour concevoir les politiques à venir. À l’aide des données mensuelles de l’enquête sur la population actuelle aux États-Unis, cet article analyse les différences dans les réponses en matière d’emploi entre les hommes et les femmes. La principale constatation est que les femmes les moins éduquées ayant de jeunes enfants ont été les plus touchées au cours des neuf premiers mois de la crise.La perte d’emploi des femmes avec de jeunes enfants en raison de la charge de garde d’enfants supplémentaire est estimée à 45 pour cent des augmentation de l’écart entre les sexes en matière d’emploi et réduire la production totale de 0,36% entre avril et novembre 2020.

Émission: 71

Effets économiques et épidémiologiques de la distanciation sociale obligatoire et spontanée

Distanciation mandatée et spontanée

Martin Bodenstein, Giancarlo Corsetti et Luca Guerrieri

Sur la base d’un modèle épidémiologique standard, nous dérivons et appliquons des tests empiriques de l’hypothèse que les contacts, tels que représentés par les données de mobilité, ont un effet sur la propagation de l’épidémie de coronavirus, résumée par les taux de reproduction, et sur l’activité économique, telle que capturée. par des demandes initiales ultérieures de prestations de chômage. Nous montrons que les changements de mobilité au cours des premiers trimestres de 2020, qu’ils soient spontanés ou obligatoires, ont eu des effets significatifs à la fois sur la propagation du coronavirus et sur l’économie. De manière frappante, nous constatons que la distanciation sociale spontanée n’était pas moins coûteuse que la distanciation sociale obligatoire. Nos résultats suggèrent que le rebond de l’activité économique lors de la levée des commandes au foyer a été principalement motivé par l’amélioration des paramètres épidémiologiques. En d’autres termes, sans la réduction du taux de reproduction du coronavirus, on aurait pu s’attendre à un doublement de la distanciation sociale spontanée.

La reprise en forme de K: examen des fortunes divergentes des travailleurs lors de la reprise de la pandémie COVID-19 à l’aide de microdonnées d’enquêtes sur les entreprises et les ménages

Michael Dalton, Jeffrey A. Groen, Mark A. Loewenstein, David S. Piccone Jr. et Anne E. Polivka

Cet article examine les tendances de l’emploi par groupe de salaires au cours de la pandémie de coronavirus aux États-Unis à l’aide de microdonnées provenant de deux sources de données bien connues du Bureau of Labor Statistics: les statistiques actuelles de l’emploi et l’enquête démographique actuelle. Nous constatons que les établissements qui paient les salaires moyens les plus bas et les travailleurs les moins rémunérés ont connu la plus forte baisse de l’emploi et sont toujours les plus éloignés de la reprise d’après les données les plus récentes sur les travailleurs en décembre 2020 et les établissements en janvier 2021. que l’effet observé pour les travailleurs à bas salaires est dû au fait que ces travailleurs sont concentrés dans quelques secteurs à bas salaires de l’économie par rapport à la pandémie affectant les travailleurs à bas salaires dans un certain nombre de secteurs de l’économie. Nos résultats indiquent que l’expérience des travailleurs à bas salaire n’est pas entièrement due au fait que ces travailleurs sont concentrés dans des secteurs à bas salaires – pour de nombreux secteurs, le quintile de salaire le plus bas de ce secteur a également eu les pires résultats en matière d’emploi. Pour chaque mois de mars 2020 à janvier 2021, au moins 20% de la baisse de l’emploi parmi les établissements aux salaires les plus bas était attribuable à des changements au sein de l’industrie. Une autre conclusion importante est que même pour ceux qui restent employés pendant la pandémie, la probabilité de devenir à temps partiel pour des raisons économiques a augmenté, en particulier pour les travailleurs à bas salaire.

Les malheurs ne viennent jamais seuls: de la crise financière à la pandémie de Covid-19

La crise financière et Covid

Antonio Moreno, Steven Ongena, Alexia Ventula Veghazy et Alexander F. Wagner

Y a-t-il un lien entre la crise financière de 2007-2009 et la pandémie COVID-19? Pour répondre à cette question, nous examinons la relation entre les pertes macroéconomiques et financières dérivées de la crise financière et les résultats sanitaires associés à la première vague de la pandémie. Au niveau européen, les pays les plus touchés par la crise financière ont enregistré plus de décès par rapport aux cas de coronavirus. Nous trouvons une relation significative analogue entre les provinces espagnoles et un mécanisme de transmission allant du financement aux résultats de santé à travers des différences transversales dans les établissements de santé.

Covid-19 peut-il inciter les gouvernements à mettre en œuvre des réformes fiscales dans les pays en développement?

Épidémies et réformes fiscales

Sanjeev Gupta et João Tovar Jalles

Nous estimons que l’impact budgétaire à court et moyen terme des pandémies précédentes a été important dans 170 pays (y compris les pays à faible revenu) au cours de la période 2000-2018. L’impact a varié, les pandémies affectant davantage les dépenses publiques que les revenus dans les économies avancées, tandis que l’inverse s’applique aux pays en développement. En utilisant un sous-ensemble de 45 pays en développement pour lesquels des données sur la réforme fiscale sont disponibles, nous constatons que les pandémies passées ont poussé les pays à mettre en œuvre des réformes fiscales, en particulier en matière d’impôts sur les sociétés, d’accises et d’imposition foncière. Les pandémies ne conduisent pas à des réformes de l’administration des recettes.

Faire face à Covid: les réponses des femmes australiennes lors de la pandémie de Covid-19

Comment les femmes australiennes font-elles face?

Megan Godwin, Stephen Whyte, Rebekah Russell-Bennett et Uwe Dulleck

La pandémie actuelle de Covid-19 est un choc stochastique qui affecte toutes les femmes australiennes indépendamment des différences individuelles. Bien que tout le monde ne contractera pas le coronavirus, chaque femme australienne a connu une réaction de stress ayant un impact sur ses réponses psychologiques, réglementaires ou comportementales. Notre étude utilise une enquête à mesures répétées auprès de femmes australiennes (n = 420) en juin (n = 207) et septembre 2020. Nous analysons la relation entre la démographie, la personnalité, la santé mentale et physique des femmes, leur connaissance de Covid-19 et leurs préférences de risque déclarées. , pour identifier les facteurs ayant un impact sur les comportements d’adaptation employés à l’aide de l’échelle BriefCope. Nous constatons que l’âge et la personnalité sont des facteurs clés qui influent à la fois sur le choix et le type de stratégie d’adaptation utilisée. Les femmes australiennes plus jeunes (par rapport aux plus âgées) sont plus susceptibles de s’engager dans une stratégie d’adaptation. Il est intéressant de noter que le revenu des femmes et l’état de santé général auto-évalué n’ont montré aucune relation statistiquement significative avec l’une des 14 stratégies de l’échelle BriefCope. De plus, notre analyse des mesures répétées montre que les femmes âgées de 40 ans et moins signalent des augmentations plus importantes de la consommation d’évitants (déni, toxicomanie, évacuation et auto-culpabilité) et d’approches d’adaptation (soutien émotionnel et instrumental) par rapport aux femmes plus âgées de notre cohorte. Nous constatons également qu’au fil du temps, les jeunes femmes australiennes présentent des propensions au risque plus élevées que les femmes australiennes plus âgées. Nos conclusions sur les principaux effets de l’âge et du temps sur la volonté ou le choix des femmes australiennes d’adopter une stratégie d’adaptation justifient des recherches plus poussées sur les facteurs sous-jacents de cette différence générationnelle prononcée.

Éclaircir les spectateurs: les matchs de football ont-ils contribué à la deuxième vague COVID-19 en Allemagne?

Cet article fournit une analyse ex-post de la contribution des matches de football à la propagation du COVID-19 lors de la deuxième vague d’infection en Allemagne à l’été et à l’automne 2020. Nous constatons des effets légèrement positifs des matches de football professionnel sur les cas nouvellement enregistrés du virus dans le comtés respectifs. Une limite supérieure nous indique qu’une correspondance supplémentaire dans un comté augmente en moyenne le nombre de cas enregistrés quotidiennement de 0,52 à 0,91 cas pour 100 000 habitants après trois semaines. Par conséquent, cela implique en moyenne une augmentation de l’incidence sur sept jours pour 100 000 habitants de 3,6 à 6,4. Nous ne trouvons pas de résultats qualitativement différents dans un sous-échantillon de matches de championnat allemand qui ont été associés pour avoir les règles d’hygiène les plus strictes. Plus important encore, l’effet trouvé est médié par le niveau d’incidence au jour du match avec très peu d’infections pour les matchs à une incidence de sept jours inférieure à 25. Comme mécanisme sous-jacent, nous identifions des augmentations de la mobilité locale. De plus, les infections ne sont pas explicitement motivées par des niveaux d’occupation plus élevés. Nous montrons enfin que l’interdiction des supporters à l’extérieur limite avec succès la propagation du COVID-19 au-delà des frontières des comtés et trouvons également une indication d’un effet réduit des matchs de football en présence de la “ lumière de verrouillage ” lancée par l’Allemagne début novembre.

Émission: 70

Un modèle macroéconomique de la saturation des soins de santé, de l’inégalité et du compromis entre la production et la pandémie

Saturation et inégalité des soins de santé

Enrique G. Mendoza, Eugenio Rojas, Linda L. Tesar et Jing Zhang

Le COVID-19 est devenu une urgence sanitaire mondiale lorsqu’il a menacé l’effondrement catastrophique des systèmes de santé alors que la demande de biens et services de santé et leurs prix relatifs augmentaient. Les gouvernements ont réagi en bloquant et en augmentant les transferts. Des preuves empiriques montrent que les verrouillages et la saturation des soins de santé contribuent à expliquer la variation du PIB d’un pays à l’autre, même après avoir contrôlé les cas de COVID-19 et la mortalité. Nous expliquons ce compromis production-pandémie comme résultant d’un choc sur la demande de santé de subsistance qui est plus importante lorsque l’utilisation du capital est plus élevée dans un modèle avec des entrepreneurs et des travailleurs. Le système de santé se rapproche de la saturation à mesure que l’écart entre l’offre et la subsistance se rétrécit, ce qui aggrave la consommation et les inégalités de revenus. Une externalité fausse l’utilisation parce que les entreprises n’internalisent pas qu’une faible utilisation atténue la saturation des soins de santé. La réponse stratégique optimale comprend les verrouillages et les transferts aux travailleurs. Sur le plan quantitatif, des verrouillages stricts et des augmentations importantes des transferts peuvent être optimaux et générer des gains de bien-être appréciables, car ils empêchent une forte augmentation des inégalités. Les coûts de bien-être et de production varient en réponse à de petits changements de paramètres ou à des écarts par rapport aux politiques optimales. Des verrouillages faibles associés à de faibles programmes de transferts sont la pire alternative et pourtant sont conformes à ce que plusieurs pays émergents et les moins avancés ont mis en œuvre.

Schumpeter attrapera-t-il Covid-19?

Hibernation ou zombification?

Mathieu Cros, Anne Epaulard et Philippe Martin

Nous estimons les facteurs prédictifs des défaillances d’entreprises dans la crise du COVID sur la base des données françaises en 2020. Bien que le nombre d’entreprises déposant leur bilan ait été bien inférieur à son niveau normal (-36% par rapport à 2019), les mêmes facteurs qui prédisaient les défaillances d’entreprises (principalement la productivité et dette) en 2019 sont à l’œuvre de la même manière qu’en 2020. Ainsi, le processus de sélection, bien que très réduit, n’a pas été faussé en 2020. A ce stade, l’hibernation partielle plutôt que la zombification caractérise la sélection en survie ou en échec de l’entreprise . Nous constatons également que l’hétérogénéité sectorielle du choc COVID du chiffre d’affaires (représentée par l’évolution des transactions par carte de crédit) a été largement (mais pas entièrement) absorbée par le soutien des politiques publiques car elle prédit peu la probabilité de faillite au niveau de l’entreprise. Enfin, nous esquissons quelques scénarios potentiels pour 2021-2022 pour différents secteurs sur la base de nos estimations empiriques des prédicteurs de faillites d’entreprises.

Association of Opening K-12 Schools and Colleges with The Spread Of Covid-19 aux États-Unis: analyse des données de panel au niveau du comté

Victor Chernozhukov, Hiroyuki Kasahara et Paul Schrimpf

Cet article examine empiriquement comment l’ouverture d’écoles et de collèges K-12 est associée à la propagation du COVID-19 à l’aide de données de panel au niveau du comté aux États-Unis. En utilisant des données sur la circulation piétonnière et les plans d’ouverture d’écoles K-12, nous analysons comment une augmentation des visites dans les écoles et l’ouverture d’écoles avec différentes méthodes d’enseignement (en personne, hybride et à distance) est liée au taux de croissance à 2 semaines de cas confirmés de COVID-19. Notre analyse de régression des données de panel biaisées avec un ensemble de variables nominales de comté, les interactions des variables d’état et de semaine et d’autres contrôles montre qu’une augmentation des visites dans les écoles et les collèges K-12 est associée à une augmentation ultérieure des taux de croissance des cas. Les estimations indiquent que l’ouverture complète d’écoles K-12 avec apprentissage en personne est associée à une augmentation de 5 (SE = 2) points de pourcentage du taux de croissance des cas. Nous constatons également que l’association positive des visites d’écoles de la maternelle à la 12e année ou des ouvertures d’écoles en personne avec la croissance des cas est plus forte pour les comtés qui n’exigent pas que le personnel porte des masques dans les écoles. Ces résultats ont une interprétation causale dans un modèle structurel avec des facteurs de confusion de comté et de temps non observés. L’analyse de sensibilité montre que les résultats de référence sont robustes aux hypothèses de calendrier et aux spécifications alternatives.

La macroéconomie de la stratégie de sortie de Covid-19: le cas du Japon

Dans cet article, j’étudie un modèle SIR-Macro simple pour examiner le deuxième verrouillage progressif du Japon, à partir de janvier 2021. Les paramètres du modèle sont calibrés pour capturer à la fois l’infection et les fluctuations économiques en 2020. Je trouve que le gouvernement devrait prolonger ce verrouillage suffisamment longtemps pour éviter un autre verrouillage futur, compte tenu de la capacité médicale du pays. En outre, je considère la politique de ciblage de l’USI qui maintient le nombre de patients sévères à un niveau constant, imitant le ciblage d’inflation de la politique monétaire. Ces politiques d’endiguement au niveau macro peuvent aider à développer des stratégies dépendant de l’âge en utilisant les différences de calendrier des vaccinations entre les jeunes et les personnes âgées.

Les différences partisanes dans la prévalence du COVID-19 parmi les politiciens suggèrent un rôle important pour les comportements protecteurs

Quels politiciens attrapent Covid aux États-Unis?

Patrick Carlin, Sumedha Gupta, Daniel W. Sacks et Coady Wing

Quelle est l’importance des comportements d’évitement des risques pour prévenir la propagation du COVID-19? Il est difficile de répondre à cette question car les comportements d’évitement des risques peuvent être corrélés à des risques non comportementaux (tels que les risques professionnels) et parce que la prévalence du COVID-19 est mal mesurée en raison de tests limités. Nous étudions la prévalence des infections au COVID-19 chez les gouverneurs des États et les membres du Congrès américain. Ces politiciens sont confrontés à des risques professionnels similaires et sont fréquemment testés. Pourtant, nous trouvons de grandes différences dans la prévalence du COVID-19 selon les partis: les politiciens républicains sont trois fois plus susceptibles que les démocrates d’avoir déjà signalé un cas de COVID. L’association entre le COVID-19 et l’affiliation à un parti n’est pas due à des différences démographiques, à des différences de risque d’État ou à des stratégies de campagne différentes. Compte tenu des différences bien documentées dans les attitudes au risque et le comportement préventif le long de lignes politiques, le taux différentiel de COVID-19 que nous documentons est cohérent avec l’idée que le risque comportemental est un déterminant clé des infections à COVID-19.

Émission: 69

Aplatir la courbe: réévaluation induite par une pandémie de l’immobilier urbain

Vol depuis les centres métropolitains

Arpit Gupta, Vrinda Mittal, Jonas Peeters et Stijn Van Nieuwerburgh

Nous montrons que la pandémie COVID-19 a entraîné une baisse des prix des logements et des loyers dans les centres-villes, et des augmentations de prix et de loyer loin du centre, aplatissant ainsi la courbe offre-loyer dans la plupart des zones métropolitaines américaines. Dans les MSA, l’aplatissement de la courbe offre-loyer est plus important lorsque le travail à domicile est plus répandu, que les marchés du logement sont plus réglementés et que l’offre est moins élastique. Les marchés du logement prévoient que la croissance des loyers urbains dépassera la croissance des loyers des banlieues dans un avenir prévisible.

Les verrouillages localisés provoquent-ils des externalités sur le marché du travail?

Gabriele Guaitoli et Todor Tochev

Les restrictions commerciales introduites pendant la pandémie de Covid-19 ont grandement affecté le marché du travail. Cependant, quantifier leurs coûts n’est pas anodin car les politiques locales affectent les zones voisines par des retombées. En exploitant la variation locale des restrictions et des déplacements aux États-Unis, nous estimons les effets causaux directs et indirects des verrouillages. Les retombées représentent à elles seules 10 à 15% des pertes d’emplois aux États-Unis. Nous corroborons ces résultats par des preuves causales d’un mécanisme basé sur la consommation: les magasins dont les consommateurs résident dans des zones voisines sous lock-out subissent des pertes d’emplois plus importantes, même si aucune restriction locale n’est en place. La prise en compte des retombées implique des effets totaux de verrouillage plus importants, mais des effets directs plus faibles.

Insolvabilité et surendettement après l’épidémie de COVID-19: évaluation des risques et réponses politiques

Insolvabilité et surendettement

Lilas Demmou, Sara Calligaris, Guido Franco, Dennis Dlugosch, Müge Adalet McGowan et Sahra Sakha

Cet article examine la probabilité d’insolvabilité des entreprises et les implications potentielles du surendettement des sociétés non financières induit par le choc économique associé à l’épidémie de COVID-19. Sur la base de modèles comptables simples, il évalue dans quelle mesure les entreprises épuisent leurs coussins de fonds propres et augmentent leurs ratios d’endettement au cours de la crise du COVID-19. Ensuite, en s’appuyant sur une analyse de régression et en examinant la relation historique entre l’endettement des entreprises et l’investissement, il examine l’impact potentiel de l’endettement plus élevé sur l’investissement pendant la reprise. Dans ce contexte, la discussion présente un certain nombre d’options politiques pour aplatir la courbe des insolvabilités liées à la crise, qui pourraient potentiellement affecter des entreprises par ailleurs viables, et pour réduire le risque de surendettement, ce qui pourrait ralentir le rythme de la reprise.

Sur la mesure de la prévalence de la maladie

Sotiris Georganas, Alina Velias et Sotiris Vandoros

Pour toute maladie infectieuse, y compris la pandémie de Covid-19, des chiffres épidémiques opportuns et précis sont nécessaires pour une politique éclairée. Dans la pandémie de Covid-19, une mauvaise mesure peut entraîner d’énormes gaspillages, en termes de santé ou de production économique. Les tests «aléatoires» sont couramment utilisés pour estimer la prévalence du virus, en rapportant les taux de positivité quotidiens. Cependant, comme les tests sont nécessairement volontaires, tous les tests «aléatoires» effectués sur le terrain souffrent d’un biais de sélection. 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.

Social Distancing Policies and Intersectoral Spillovers: The Case of Australia

Mikhail Anufriev, Andrea Giovannetti and Valentyn Panchenko

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.

School-closure is counterproductive and self-defeating

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 (“the British version”) 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.

Issue : 68

The Effects of Mortgage Forbearance on Refinancing: Evidence from the COVID-19 Period

Agostino Capponi, Ruizhe Jia and David Aaron Rios

We argue that the COVID-19 foreclosure moratorium plays a crucial role in supporting refinancing activities, in addition to preventing foreclosures. We estimate that the moratorium prevented approximately 900,000 foreclosures filings and house price drops up to 9% from April to October 2020. Using loan-level data on GSE-backed mortgages, we find that the moratorium decreases the refinancing cost of households and relaxes their refinancing eligibility constraints. Our results imply that granting forbearance to households facing foreclosures has positive externalities on a broader range of households who intend to refinance. Mortgage forbearance can thus amplify the stimulative effect of monetary policy.

Social Repercussions of Pandemics

Philip Barrett and Sophia Chen

Epidemics may have social scarring effects, increasing the likelihood of social unrest. They may also have mitigating effect, suppressing unrest by dissuading social activities. Using a new monthly panel on social unrest in 130 countries, we find a positive cross-sectional relationship between social unrest and epidemics. But the relationship reverses in the short run, implying that the mitigating effect dominates in the short run. Recent trends in social unrest immediately before and after the COVID-19 outbreak are consistent with this historic evidence. It is reasonable to expect that, as the pandemic fades, unrest may reemerge in locations where it previously existed.

Learning at home: distance learning solutions and child development during the COVID-19 lockdown

Hugues Champeaux, Lucia Mangiavacchi, Francesca Marchetta and Luca Piccoli

School closures, forcibly brought about by the COVID-19 crisis in many countries, have impacted children’s lives and their learning processes. There will likely be substantial and persistent disparities between families in terms of educational outcomes. Distance learning solutions adopted by schools have been heterogeneous across countries, within countries and between school levels. As a consequence, most of the burden of children’s learning has fallen on their parents, with likely uneven results depending on the socio-economic characteristics of the family. Using a real time survey data, collected in April and early May 2020 in France and Italy, we estimate child fixed effects models to analyze how the lockdown has affected parents’ evaluations of their children’s emotional wellbeing and of their home learning process. The analysis also focuses on the role played by online classes, or other interactive methods, on children’s home learning and emotional status. We find that the Spring 2020 lockdown had a stronger negative effect on boys, on children attending kindergarten (in Italy) or secondary school (in France), and on children whose parents have a lower education level. We also find that the increase in the time spent in front of screen is correlated to worse learning progresses and emotional status, while the opposite is true for the time spent reading. The use of interactive distance learning methodologies, which has been much more common in Italy than in France, appears to significantly attenuate the parents’ negative perception of the impact of lockdown on the learning progress of their children.

A Vaccine Auction

This note describes an auction for selling vaccines in a pandemic. The environment borrows from the problem of allocating positions for sponsored links on pages with online search results but recognizes the externalities that one man’s vaccination imposes on another. The auction is the pivot Vickrey-Clark-Groves mechanism and, so, inherits its properties: efficiency and strategy-proofness. The auction lets each bidder bid not only on his own behalf but also on behalf of others. The auction requires neither the bidders nor the auctioneer to forecast the efficacy of the vaccine or the evolution of the pandemic.

The Impact of COVID-19 on the European Short-Term Rental Market

Elisa Guglielminetti, Michele Loberto and Alessandro Mistretta

The diffusion of COVID-19 and related containment measures practically halted tourism flows, which in many countries generate more than 10% of GDP. By exploiting Airbnb data covering the main touristic destinations in Europe, we investigate how the exposure to COVID-19 and the stringency of containment measures affected the market of short-term rentals over the spring and summer months of 2020. We find that the epidemic reduced dramatically both the supply of apartments available for rents and the consumers’ demand, up to 9 months ahead. Prices fell as well, even at long time horizons, but with a delay. All in all, our results point to a persistent impact of COVID-19 and related containment measures on consumers’ behaviour, with demand shortages potentially overcoming supply shortfalls.

Cash-Management in Times of Covid-19

Fernando Alvarez and David Argente

The COVID-19 pandemic has decreased households’ needs for cash and has forced households to use other payment methods. We argue that these patterns are consistent with a variety of cash management models and, in particular, that these patterns indicate an increase in the transaction cost of adjusting a household’s stock of cash. The model allows us to separate the contributions to the observed decline in cash transactions from reduced total spending and from cash management decisions. We use detailed data on ATM cash disbursements in Argentina and the US to estimate how much the pandemic has changed the transaction cost of using cash. This estimation shows that if the intensity of the virus doubles in a county, cash transaction cost increases by approximately 2%. The results from Argentina and the US are quantitatively consistent and imply that, given that cash and other payment methods are imperfectly substitutable, the recent increase in contactless payments due to health risks is not without cost to households.

COVID-19 and Precautionary Corporate Cash Holdings: Evidence from Japan

Corporate cash holding in Japan

Tomohito Honda and Iichiro Uesugi

This study examines how listed firms have managed their cash holdings since the outbreak of the COVID-19 crisis, using quarterly data on publicly-traded firms in Japan. After providing an overview of developments in cash holdings since the start of the crisis, we focus on the precautionary motive for corporate cash holdings and examine the role of firms’ cash flow and volatility therein in firms’ cash holdings to find the following: (1) corporate cash holdings have increased rather than decreased since the start of the crisis; (2) an increase in firms’ cash flow has a positive impact on their cash holdings during normal times, and the sensitivity of cash holdings to cash flows was more pronounced during the first three months of the crisis; (3) firms facing higher sales volatility held more cash in the second three-month period following the start of the crisis; and (4) the cash flow sensitivity of financially constrained firms’ cash holdings during the crisis period increased more than that of unconstrained firms. Overall, the COVID-19 crisis has had a substantial impact on corporate cash management strategies and the results are consistent with the precautionary motive theory for cash holdings.

Issue : 67

Lockdown fatigue: The diminishing effects of quarantines on the spread of COVID-19

Patricio Goldstein, Eduardo Levy Yeyati and Luca Sartorio

Non-Pharmaceutical Interventions (NPIs) have been for most countries the key policy instrument utilized to contain the impact of the COVID-19 pandemic. In this article, we conduct an empirical analysis of the impact of these policies on the virus’ transmission and death toll, for a panel of 152 countries, from the start of the pandemic through December 31, 2020. We find that lockdowns tend to significantly reduce the spread of the virus and the number of related deaths. We also show that this benign impact declines over time: after four months of strict lockdown, NPIs have a significantly weaker contribution in terms of their effect in reducing COVID-19 related fatalities. Part of the fading effect of quarantines could be attributed to an increasing non-compliance with mobility restrictions, as reflected in our estimates of a declining effect of lockdowns on measures of actual mobility. However, we additionally find that a reduction in de facto mobility also exhibits a diminishing effect on health outcomes, which suggests that lockdown fatigues may have introduced broader hurdles to containment policies.

A Levelling Down and the COVID-19 Lockdowns: Uneven Regional Recovery in UK Consumer Spending

Recovery in UK consumption

John Gathergood, Fabian Gunzinger, Benedict Guttman-Kenney, Edika Quispe-Torreblanca, and Neil Stewart

We show the recovery in consumer spending in the United Kingdom through the second half of 2020 is unevenly distributed across regions. We utilise Fable Data: a real-time source of consumption data that is a highly correlated, leading indicator of Bank of England and Office for National Statistics data. The UK’s recovery is heavily weighted towards the “home counties” around outer London and the South. We observe a stark contrast between strong online spending growth while offline spending contracts. The strongest recovery in spending is seen in online spending in the “commuter belt” areas in outer London and the surrounding localities and also in areas of high second home ownership, where working from home (including working from second homes) has significantly displaced the location of spending. Year-on-year spending growth in November 2020 in localities facing the UK’s new tighter “Tier 3” restrictions (mostly the midlands and northern areas) was 38.4% lower compared with areas facing the less restrictive “Tier 2” (mostly London and the South). These patterns had been further exacerbated during November 2020 when a second national lockdown was imposed. To prevent such COVID-19-driven regional inequalities from becoming persistent we propose governments introduce temporary, regionally-targeted interventions in 2021. The availability of real-time, regional data enables policymakers to efficiently decide when, where and how to implement such regional interventions and to be able to rapidly evaluate their effectiveness to consider whether to expand, modify or remove them.

A Model of Crisis Management

We propose a model of how multiple societies respond to a common crisis. A government faces a “damned-either-way” policy-making dilemma: aggressive intervention contains the crisis, but the resulting good outcome makes people skeptical of the costly response; light intervention worsens the crisis and causes the government to be faulted for not doing enough. This dilemma can be mitigated for the society that encounters the crisis first if another society faces it afterward. Our model predicts that the later society does not necessarily perform better despite having more information, while the earlier society might benefit from a dynamic counterfactual effect.

Benefit-Cost Analysis of COVID-19 Policy Intervention at the State and National Level

Cost-benefits of policy interventions in the US 1

This study analyzes the benefits of statewide policy intervention in reducing COVID-19 deaths and the costs of that intervention in lost jobs and lower real gross state product (RGSP). Policy interventions are measured by the Oxford stringency index which places a daily numerical value on the level of a state’s policy intervention.
Empirical evidence is provided that shows policy interventions have reduced COVID-19 deaths in the U.S. by 358,000 lives in 2020. On the cost side, it was found that policy intervention resulted in a loss of 7.3 million jobs and a decline of $410 billion in RGSP.
The study concludes by integrating the findings related to the benefits and costs of policy interventions to the economic cost per life saved for every state, as well as an estimate of the national average cost per life of $1.1 million. That figure is compared to an age-adjusted value of statistical life (VSL) calculated in the study of $4.2 million for COVID-19 fatalities.

The Benefits of Coronavirus Suppression: A Cost-Benefit Analysis of the Response to the First Wave of COVID-19 in the United States

Cost-benefits of policy interventions in the US 2

James Broughel and Michael Kotrous

This paper estimates the benefits and costs of state suppression policies to “bend the curve” during the initial outbreak of COVID-19 in the United States. We employ a value-of-production approach that values benefits and costs in terms of additions or subtractions to total production. Relative to a baseline in which only the infected and at-risk populations mitigate the spread of coronavirus, we estimate that total benefits of suppression policies are between $605.9 billion and $841.1 billion from early March 2020 to August 1, 2020. Relative to private mitigation, the costs of suppression policies are estimated to be between $214.2 billion and $331.5 billion. The cost estimate is based on the duration of nonessential business closures and stay-at-home orders, which were enforced between 42 and 65 days. Our results indicate that the net benefits of suppression policies to slow the spread of COVID-19 are positive and may be substantial.

Young Lives, interrupted: Short-term Effects of the COVID-19 Pandemic on Adolescents in Low- and Middle-Income Countries

Marta Favara, Richard Freund, Catherine Porter, Alan Sánchez and Douglas Scott

We examine how the lives of adolescents in Low- and Middle- Income countries have been affected by the COVID-19 pandemic and related economic downturn using data from a large-scale phone survey conducted in four countries as a part of Young Lives, a 20-year longitudinal study. The phone survey asked detailed information about the COVID-19 pandemic experiences as well as collecting welfare indicators that are comparable across rounds. This allows a unique opportunity to compare a cohort of young people born around the turn of the Millennium (Younger Cohort) with an Older Cohort born in 1994, measured at the same age but seven years previously; both cohorts have been surveyed by the project since 2002. We find that relative gains in multidimensional well-being of the Younger Cohort found in survey rounds up to 2016 had largely disappeared in 2020. The significant (absolute and relative) downturn in self-reported wellbeing and economic circumstances is apparent in India, Ethiopia, and Peru, though not in Vietnam, the country which has had the most success at controlling the virus. However, educational enrolment has been affected in all countries. We suggest that the consequences of education dropout and links to potential mental health issues may mean the effects are long lasting in the absence of interventions to support young people’s wellbeing and livelihoods

Macroepidemics and unconventional monetary policy: Coupling macroeconomics and epidemiology in a financial DSGE-SIR framework

Verónica Acurio Vásconez, Olivier Damette and David W. Shanafelt

Despite the fact that the current covid-19 pandemic was neither the first nor the last disease to threaten a pandemic, only recently have studies incorporated epidemiology into macroeconomic theory. In our paper, we use a dynamic stochastic general equilibrium (DSGE) model with a financial sector to study the economic impacts of epidemics and the potential for unconventional monetary policy to remedy those effects. By coupling a macroeconomic model to a traditional epidemiological model, we are able to evaluate the pathways by which an epidemic affects a national economy. We find that no unconventional monetary policy can completely remove the negative effects of an epidemic crisis, save perhaps an exogenous increase in the shares of claims coming from the Central Bank (“epi loans”). To the best of our knowledge, our paper is the first to incorporate disease dynamics into a DSGE-SIR model with a financial.

Issue : 66

Binary Classification Tests, Imperfect Standards, and Ambiguous Information

New binary classification tests are often evaluated relative to a pre-established test. For example, rapid Antigen tests for the detection of SARS-CoV-2 are assessed relative to more established PCR tests. In this paper, I argue that the new test can be described as producing ambiguous information when the pre-established is imperfect. This allows for a phenomenon called dilation—an extreme form of non-informativeness. As an example, I present hypothetical test data satisfying the WHO’s minimum quality requirement for rapid Antigen tests which leads to dilation. The ambiguity in the information arises from a missing data problem due to imperfection of the established test: the joint distribution of true infection and test results is not observed. Using results from Copula theory, I construct the (usually non-singleton) set of all these possible joint distributions, which allows me to assess the new test’s informativeness. This analysis leads to a simple sufficient condition to make sure that a new test is not a dilation. I illustrate my approach with applications to data from three COVID-19 related tests. Two rapid Antigen tests satisfy my sufficient condition easily and are therefore informative. However, less accurate procedures, like chest CT scans, may exhibit dilation.

Protecting Lives and Livelihoods with Early and Tight Lockdowns

Early and Tight Lockdowns

Francesca Caselli, Francesco Grigoli and Damiano Sandri

Using high-frequency proxies for economic activity over a large sample of countries, we show that the economic crisis during the first seven months of the COVID-19 pandemic was only partly due to government lockdowns. Economic activity also contracted severely because of voluntary social distancing in response to higher infections. Furthermore, we show that lockdowns substantially reduced COVID-19 cases, especially if they were introduced early in a country’s epidemic. This implies that, despite involving short-term economic costs, lockdowns may pave the way to a faster recovery by containing the spread of the virus and reducing voluntary social distancing. Finally, we document that lockdowns entail decreasing marginal economic costs but increasing marginal benefits in reducing infections. This suggests that tight short-lived lockdowns are preferable to mild prolonged measures.

The great employee divide: Clustering employee «well-being» challenge during Covid-19

Jacques Bughin, Michele Cincera, Dorota Reykowska, Marcin Żyszkiewicz and Rafal Ohme

The Covid-19 pandemic has triggered unprecedented levels of disruption and stress for workers. Still, little is relatively known about the state of mind of the workforce, even if its well-being is increasingly recognized as a driver of productivity. This paper encompasses multiple forms of stress – health, economic, social, and psychological – faced by the workforce, and demonstrates that not only have workers been facing large levels of stress during the Covid-19 pandemic beyond health issues, but that stress is not uniformly distributed among workers. While it is known that Covid-19 has been building a divide between remote and on-site workers, we uncover a much larger divide than the ones induced by work location alone, with the divide being due to different perceptions of mix and level of worries. Human resources practices may have to be much more personalized and include all forms of stress to diagnose the level of workers’ state of fragility if they wish to create a much more resilient and productive workforce.

COVID-19 Closure and Containment Policies: A First Look at the Labor Market Effects in Emerging Nations

Labour markets in emerging market countries

Evidence is provided as to how government containment and closure policies in response to the COVID-19 pandemic in affected firm-level employment and hours worked and the differential employment impacts of such policies between men and women. The analysis uses data from the World Bank’s Enterprise Analysis Unit survey of business enterprises owners and top managers located in 20 emerging nations about the impact that COVID-19 had on their business operations. Several principal conclusions are drawn from the analysis. First, containment and closure policies, viewed as a whole, impacted negatively permanent jobs and total hours worked at the firm level, but not temporary employment. Second, school and workplace closing policies increased the likelihood that firms reduced permanent employment, but the impact did not fall disproportionately on women. Third, public transport closings negatively impacted the employment prospects of all employment categories except temporary employment. Further, women were disproportionately affected by such policies. Fourth, policies directed at closure of public events had large negative effects across all employment categories, including temporary employment. Fifth, restrictions on internal movement negatively affected both permanent and temporary employment, but there is only weak evidence that such policies affect women disproportionally. Finally, at least for the set of emerging economies studied in this analysis, there is no evidence that international travel controls affected the likelihood that firms would reduce their total work hours, their levels of permanent and temporary employment, nor their reliance on women in their workforce.

A New Covid Policy Stringency Index for Europe

A New Stringency Index for Europe

Daniel Gros, Alexandre Ounnas and Timothy Yu-Cheong Yeung

We present a new policy stringency index for Europe, based on a compilation of country response measures to Covid-19 provided by the European Centre for Disease Prevention and Control (ECDC). This new index is available for dozens of different types of mandatory social distancing measures most frequently applied (e.g. school closures, face covering, closure of restaurants and other sectors of the economy, stay at home orders, etc.) and takes into account that many measures are graduated. An aggregate index is also provided.
First tests indicate that (changes in) this policy index are highly correlated with contemporaneous and future economic activity. An increase in the overall restrictiveness indicator of one standard deviation is associated with a fall in GDP of about 3 percentage points. Increases in this indicator are usually followed by a fall in infections.
The aggregate ‘CEPS-PERISCOPE index’ is highly correlated (correlation coefficient 80-90 % in levels and changes) with the Oxford government response tracker in both level and monthly changes. However, the correlation is much smaller for individual elements, such as school closures, prohibitions on mass gatherings, etc. The underlying data is available for researchers to use for further empirical work.

Issue : 65

Optimal Vaccine Policies: Spillovers and Incentives

Nikhil Vellodi and Joshua Weiss

We offer a novel theoretical framework to study optimal vaccination policies. The key features of the model are that agents: 1) differ both in their potential exposure (x) to others and vulnerability (y) to severe illness, 2) exert negative externalities through interaction, and 3) can take voluntary preventative measures, for instance self-isolation. Our main result is a complete characterization of the second-best policy. Three striking features emerge. First, it is non-monotone – people with intermediate y are vaccinated more than those with either low or high y. Second, it exhibits an exposure premium among those who do not self-isolate – people with higher x require lower overall risk, xy, to be vaccinated. Third, for those who voluntarily self-isolate, it is invariant to y, depending only upon x. Numerical results demonstrate that policies vaccinating only the most vulnerable perform significantly worse than other simple heuristics, especially when supplies are limited.

Schools opening and Covid-19 diffusion: evidence from geolocalized microdata

Emanuele Amodio, Michele Battisti, Andros Kourtellos, Giuseppe Maggio and Carmelo Massimo Maida

Are schools triggering the diffusion of the Covid-19? This question is at the core of an extensive debate about the social and long-run costs of stopping the economic activity and human capital accumulation from reducing the contagion. In principle, many confounding factors, such as climate, health system treatment, and other forms of restrictions, may impede disentangling the link between schooling and Covid-19 cases when focusing on a country or regional-level data. This work sheds light on the potential impact of school opening on the upsurge of contagion by combining a weekly panel of geocoded Covid-19 cases in Sicilian census areas with a unique set of school data. The identification of the effect takes advantage of both a spatial and time-variation in school opening, deriving by the flexibility in opening dates determined by a Regional Decree, and by the occurrence of a national referendum, which pulled a set of poll-station schools towards opening on the 24th of September. The analysis finds that census areas where schools opened before observed a significant and positive increase of Covid-19 cases between 1.5-2.9%. This result is consistent across several specifications, including accounting for several schools opening determinants, such as the number of temporary teachers, Covid-19 cases in August, and pupils with special needs. Besides, school opening increases non-linearly the number of instances in zones observing already some Covid-19 cases. Using the estimated coefficients, this paper also presents a prediction of Covid-19 cases with different school opening scenarios. Finally, an exploration of the heterogeneity at school and demographic levels, including class size and age, poses the basis for calibrated policies to control differential reopening.

Could the United States benefit from a lockdown? A cost-benefit analysis

Costs and benefits of lockdowns

Though COVID vaccines are finally available, the rate at which they are administered is slow, and in the meantime the pandemic continues to claim about as many lives every day as the 9/11 tragedy. I estimate that with the promised rate of vaccinations, if no additional non-pharmaceutical interventions are implemented, 406 thousand additional lives will be lost and the future cost of the pandemic will reach $2.4 trillion, or 11% of GDP. Using a cost-benefit analysis, I assess whether it is optimal for the United States to follow the lead of many European countries and introduce a nation-wide lockdown. I find that a lockdown would be indeed optimal and, depending on the assumptions, it should last between two and four weeks and will generate a net benefit of up to $1.2 trillion.

Information Processing Skills of Short Sellers: Empirical Evidence from the Covid-19 Pandemic

Levy Schattmann, Jan-Oliver Strych and Joakim Westerholm

We aim to answer if superior performance by short sellers’ is generated by processing public information rather than by exploiting private information. To achieve this, we analyze if short sellers with healthcare expertise outperform in short selling of non-healthcare stocks compared to those with no healthcare expertise. Since we expect that any short sellers’ private information about healthcare stocks is unlikely to be material for non-healthcare stocks, we conclude that any observed outper-formance in non-healthcare stocks is more likely caused by processing public information. As an identification strategy, we interpret the outbreak of the Covid-19 pandemic as a treatment to short sellers with healthcare expertise. Our measures of healthcare expertise are based on pre-Covid-19 performance related to either holding or covering a short position in healthcare stocks. Using a unique German sample of daily short selling data, we find that treated short positions identified by general shorting (covering) outperformance are associated with lower 10-day CARs for non-healthcare stocks by an economically significant magnitude of 4.3 percent (7.2 percent). Robustness test rule out that our results are also driven by the use of private information or non information-based trading advantages such as better funding or lending ability of observed short sellers.

Shifts in the portfolio holdings of euro area investors in the midst of COVID-19: looking-through investment funds

Daniel Carvalho and Martin Schmitz

We study the impact of the COVID-19 shock on the portfolio exposures of euro area investors. The analysis “looks-through” holdings of investment fund shares to first gauge euro area investors’ full exposures to global debt securities and listed shares by sector at end-2019 and to subsequently analyse the portfolio shifts in the first and second quarter of 2020. We show important heterogeneous patterns across asset classes and sectors, but also across euro area less and more vulnerable countries. In particular, we find a broad-based rebalancing towards domestic sovereign debt at the expense of extra-euro area sovereigns, consistent with heightened home bias. These patterns were strongly driven by indirect holdings – via investment funds – especially for insurance companies and pension funds, but levelled off in the second quarter. On the contrary, for listed shares we find that euro area investors rebalanced away from domestic towards extra-euro area securities in both the first and the second quarter, which may be associated with better relative foreign stock market performance. Many of these shifts were only due to indirect holdings, corroborating the importance of investment funds in assessing investors’ exposures via securities, in particular in times of large shocks. We also confirm this mechanism in an analysis focusing on the large-scale portfolio rebalancing observed between 2015 and 2017 during the ECB’s Asset Purchase Programme.

Make it or break it: Vaccination intent at the time of Covid-19

Jacques Bughin, Michele Cincera, Kelly Peters, Dorota Reykowska, Marcin Żyszkiewicz and Rafal Ohme

This research updates early studies on the intention to be vaccinated against the Covid-19 virus among a representative sample of adults in 6 European countries (France, Germany, Italy, Spain, Sweden, and the UK) and differentiated by groups of “acceptors”, “refusers”, and “ hesitant”. The research relies on a set of traditional logistic and more complex classification techniques such as Neural Networks and Random Forest techniques to determine common predictors of vaccination preferences. The findings highlight that socio-demographics are not a reliable measure of vaccination propensity, after one controls for different risk perceptions, and illustrate the key role of institutional and peer trust for vaccination success. Policymakers must build vaccine promotion techniques differentiated according to “acceptors”, “refusers”, and “ hesitant”, while restoring much larger trust in their actions upfront since the pandemics if one wishes the vaccination coverage to close part of the gap to the level of herd immunity.

Issue : 64

Zoomshock: The geography and local labour market consequences of working from home

Gianni De Fraja, Jesse Matheson and James Rockey

The Covid-19 health crisis has led to a substantial increase in work done from home, which shifts economic activity across geographic space. We refer to this shift as a Zoomshock. The Zoomshock has implications for locally consumed services; the clientèle of restaurants, coffee bars, pubs, hair stylists, health clubs located near workplaces now demand those services near where they live. In this paper, we measure the Zoomshock at a granular level for UK neighbourhoods. We establish three important empirical facts. First, the Zoomshock is large; many workers can work-from-home and live in a different neighbourhood than they work. Second, the Zoomshock is very heterogenous; economic activity is decreasing in productive city centres and increasing residential suburbs. Third, the Zoomshock moves workers away from neighbourhoods with a large supply of locally consumed services to neighbourhoods where the supply of these services is relatively scarce. We discuss the implications for aggregate employment and local economic recovery following the Covid-19 pandemic.

Policies to support businesses through the COVID-19 Shock: A Firm Level Perspective

Policies to support businesses

Xavier Cirera, Marcio Cruz, Elwyn Davies, Arti Grover, Leonardo Iacovone, Jose Ernesto Lopez Cordova, Denis Medvedev, Franklin Okechukwu Maduko, Gaurav Nayyar, Santiago Reyes Ortega and Jesica Torres

Relying on a novel dataset covering more than 120,000 firms in 60 countries, this paper contributes to the debate about policies to support businesses through the COVID-19 pandemic. While governments around the world have implemented a wide range of policy support measures, evidence on the reach of these policies, the alignment of measures with firm needs, and their targeting and effectiveness remains scarce. This paper provides the most comprehensive assessment to date of these issues, focusing primarily on the developing economies. It shows that policy reach has been limited, especially for the more vulnerable firms and countries, and identifies mismatches between policies provided and policies most sought. It also provides some indicative evidence regarding mistargeting of policies and their effectiveness in addressing liquidity constraints and preventing layoffs. This assessment provides some early guidance to policymakers on tailoring their COVID-19 business support packages and points to new directions in data and research efforts needed to guide policy responses to the current pandemic and future crises.

The English Patient: Evaluating Local Lockdowns Using Real-Time COVID-19 & Consumption Data

Consumption of the English patient

John Gathergood and Benedict Guttman-Kenney

We find UK “local lockdowns” of cities and small regions, focused on limiting how many people a household can interact with and in what settings, are effective in turning the tide on rising positive COVID-19 cases. Yet, by focusing on household mixing within the home, these local lockdowns have not inflicted the large declines in consumption observed in March 2020 when the first virus wave and first national lockdown occurred. Our study harnesses a new source of real-time, transaction-level consumption data that we show to be highly correlated with official statistics. The effectiveness of local lockdowns are evaluated applying a difference-in-difference approach which exploits nearby localities not subject to local lockdowns as comparison groups. Our findings indicate that policymakers may be able to contain virus outbreaks without killing local economies. However, the ultimate effectiveness of local lockdowns is expected to be highly dependent on co-ordination between regions and an effective system of testing.

Walking the tightrope: Avoiding a lockdown while containing the virus

Contagion containment without lockdown

Balázs Égert, Yvan Guillemette, Fabrice Murtin and David Turner

Empirical work described in this paper explains the daily evolution of the reproduction rate, R, and mobility for a large sample of countries, in terms of containment and public health policies. This is with a view to providing insight into the appropriate policy stance as countries prepare for a potentially protracted period characterised by new infection waves. While a comprehensive package of containment measures may be necessary when the virus is widespread and can have a large effect on reducing R, they also have effect on mobility and, by extension, economic activity. A wide-ranging package of public health policies – with an emphasis on comprehensive testing, tracing and isolation, but also including mask-wearing and policies directed at vulnerable groups, especially those in care homes – offer the best approach to avoiding a full lockdown while containing the spread of the virus. Such policies may, however, need to be complemented by selective containment measures (such as restricting large public events and international travel or localised lockdowns) both to contain local outbreaks and because implementing some of the recommended public health policies may be difficult to achieve or have unacceptable social costs.

Mobility under the COVID-19 Pandemic: Asymmetric Effects across Gender and Age

Mobility across gender and age

Francesca Caselli, Francesco Grigoli, Damiano Sandri and Antonio Spilimbergo

Overall mobility declined during the COVID-19 pandemic because of government lockdowns and voluntary social distancing. Yet, aggregate data mask important heterogeneous effects across segments of the population. Using unique mobility indicators based on anonymized and aggregate data provided by Vodafone for Italy, Portugal, and Spain, we find that lockdowns had a larger impact on the mobility of women and younger cohorts. Younger people also experienced a sharper drop in mobility in response to rising COVID-19 infections. Our findings, which are consistent across estimation methods and robust to a variety of tests, warn about a possible widening of gender and inter-generational inequality.

Lockdowns and the US unemployment crisis

Lockdown and unemployment in the US

Christian Dreger and Daniel Gros

We analyse the short-term impact of social distancing measures on the US labour market, using a panel threshold model with high frequency (weekly) data on unemployment across US states. We find that changes in the restrictiveness of mandated social distancing, as measured by the Oxford Stringency Index, exert a strong immediate impact on initial unemployment. The unemployment rate is not immediate affected but follows within a very short time (two to four weeks). We also document a substantial asymmetry between tightening and easing: the impact of tightening restrictions is twice as large as that of easing them. The state of the endemic, proxied either by cases or fatalities, constitutes a marginal factor.

A Literature Review on the Impact of Increased Unemployment Insurance Benefits and Stimulus Checks in the United States

Review of support measures in the US

Elena Falcettoni and Vegard M. Nygaard

This paper is meant to present an overview of what economists have analyzed regarding the implications of two of the main components of the Coronavirus Aid, Relief, and Economic Security (CARES) Act that impact individuals: the increased UI benefits and the stimulus checks. We present the findings from the literature on these two policies implemented in the United States with an eye on potential future governmental interventions.

Issue : 63

Mobility Restrictions and Remote Work: Empirical Evidence on Demand and Supply on a European Online Labour Market

Frank Mueller-Langera and Estrella Gomez-Herrera

Intensified by the COVID-19 pandemic, online labour markets are at the core of the economic and policy debate about the future of work and the conditions under which we work online. We analyse the effects of COVID-19 related mobility restrictions on the demand, supply and hiring outcomes for remote work relative to on-site work. We benefit from the fact that the implementation of stay-at-home requirements varies by country, time and level. We use company data from a large European online labour market. Our results suggest that the stay-at-home requirements had a positive effect on the demand, supply and hiring of remote work relative to on-site work. We also find that the effect of the stay-at-home requirements on the demand, supply and hiring of remote work relative to on-site work varies substantially over time. Additional findings suggest that the stay-at-home effect is non-linear for the demand and supply of remote work and linear for the hiring of remote work. Overall, our results suggest that the flexibility provided by online labour markets may facilitate the adaptation of labour demand and labour supply to unpredicted situations where mobility is restricted.

What Works to Control COVID-19? Econometric Analysis of a Cross-country Panel

Liming Chen, David Raitzer, Rana Hasan, Rouselle Lavado, and Orlee Velarde

We use cross-country panel data to examine the effects of a variety of nonpharmaceutical interventions used by governments to suppress the spread of coronavirus disease (COVID-19). We find that while lockdown measures lead to reductions in disease transmission rates as captured by the reproduction number, R_t, gathering bans appear to be more effective than workplace and school closures, both of which are associated with large declines in gross domestic product. Further, our estimates suggest that stay-at-home orders are less effective in countries with larger family size and in developing countries. We also find that incentives are very important, as efforts at ramping up testing and tracing COVID-19 cases are more effective in controlling the spread of disease in countries with greater coverage of paid sick leave benefits. As future waves of the disease emerge, the use of more targeted and better incentivized measures can help keep the epidemic controlled at lower economic cost.

Living With Reduced Income: an Analysis of Household Financial Vulnerability Under COVID-19

Household financial vulnerability

Catarina Midões and Mateo Seré

The COVID-19 crisis has led to substantial reductions in earnings. We propose a new measure of financial vulnerability, computable through survey data, to determine whether households can withstand a certain income shock for a defined period of time. Using data from the ECB Household Finance and Consumption Survey (HFCS) we analyse pre-existing financial vulnerability in seven EU countries. We find that income support is essential for many families: 47.2 million individuals, out of the 243 million considered, cannot afford three months of food and housing expenses without privately earned income. Differences across countries are stark, and those born outside of the EU are especially vulnerable. Through a tax-benefit microsimulation exercise, we then derive household net income when employees are laid-off and awarded the COVID-19 employment protection benefits enacted in the different countries. Our findings suggest that the COVID-19 employment protection schemes awarded are extremely effective in reducing the number of vulnerable individuals. The relative importance of rent and mortgage suspensions in alleviating vulnerability is highly country dependent.

The Impact of Corona Populism: Empirical Evidence from Austria and Theory

I study the impact of corona populism – politics aimed at denying or downplaying the danger posed by COVID-19 – on the evolution of the pandemic using regional data from Austria. The right-wing FPÖ made a corona populist turn at the end of the first wave of infections. Using regression analysis, I show that the vote share of the FPÖ at the last national parliamentary elections is a strong predictor for the number of COVID-19 deaths per capita after the FPÖ switched their policy stance, while there is no or even a negative correlation before the policy switch. These results are robust under simple as well as sophisticated specifications of the model controlling for demographic and socioeconomic conditions. Interestingly, I do not find a statistically significant correlation between the FPÖ vote share and the reported number of infections. I hypothesize that this can be traced back to a self-selection bias in testing, which causes a higher dark figure in FPÖ strongholds. To explore this hypothesis, I extend the classical SIRD model to incorporate conditional quarantine, and heterogeneous mixing of two groups of agents who react differently to the pandemic. Such a model can explain the nontrivial empirics: if mixing is sufficiently homophilic, an increase in the share of “corona sceptics” can cause an increase in the number of deaths without increasing the number of reported infections. I finally discuss the implications for both groups.

Perceptive risk clusters of European citizens and NPI compliance in face of the Covid-19 pandemics

Jacques Bughin, Michele Cincera, Dorota Reykowska, Marcin Żyszkiewicz, Rafal Ohme

Despite promising announcements on an effective vaccine, the control of the Covid-19 pandemic is critically dependent on the maximum compliance of citizens to a set of non-pharmaceutical interventions (NPI for short). We use statistical clustering to partition European citizens with regards to their perceptive risks and social attitudes during the first wave of the Covid-19 pandemic and find ten segments to predict, both the extent and mix of protective behaviors adopted. Those segments demonstrate a clear divide in the population, with on one extreme, a segment (representing 8% of the population) that is self-centered and exhibits low self-risk perception as well as low NPI compliance. The other extreme is a segment representing 11% of the population that is more socially oriented, and quite responsive to all protective measures.
Since the data is survey-based, we adjusted responses based on information gap (by reaction time measurement) of both worry expression and NPI compliance, to confirm the robustness of our results. Further, we extend the notion of worries to be not only health-related but to include financial risk (like losing a job) as well as psychological worries (e.g., feeling alone, or being unable to meet with family and friends), as they prove to drive different NPI behaviors among the population.

Firms and Households during the Pandemic: What do we learn from their electricity consumption?

Firm and household electricity consumption

Olympia Bover, Natalia Fabra, Sandra Garcıa-Uribe, Aitor Lacuesta, and Roberto Ramos

We analyze the impact of the COVID-19 pandemic on electricity consumption patterns in Spain. We highlight the importance of decomposing total electricity consumption into consumption by firms and by households to better understand the economic and social impacts of the crisis. While electricity demand by firms has fallen substantially, the demand by households has gone up. In particular, during the total lockdown, these effects reached -29% and +10% respectively, controlling for temperature and seasonality. While the electricity demand reductions during the second wave were milder, the demand by firms remained 5% below its normal levels. We also document a change in people’s daily routines in response to the stringency of the lockdown measures, as reflected in their hourly electricity consumption patterns.

The Impact of the First Wave of the COVID-19 Crisis on Small and Medium-sized Enterprises and Credit Guarantee Responses: Early lessons from Japan

Credit guarantees in Japan

Nobuyoshi Yamori and Tomoko Aizawa

Small and medium-sized enterprises (SMEs) have been severely affected by the first wave of the COVID-19 crisis, which struck from January to July 2020. The COVID-19 crisis has had an impact on every industry, with unprecedently profound effects. It has also led to policy responses of a scale never seen before, which has curbed the number of failed SMEs. The expansion of the public credit guarantee system has contributed tremendously to SME financing. We investigated credit guarantee trends in relation to the first wave of the COVID-19 crisis and found that the spread of COVID-19 led to increased use of credit guarantees. The introduction of the new system that eliminated guarantee fees and interest costs, in particular, resulted in an explosive rise in credit guarantee use from May 2020 onwards. This enabled SMEs to borrow despite the significant decline of the macroeconomy. In terms of individual business types, there was a particularly marked rise in the usage of credit guarantees by companies in the restaurant industry, which has been catastrophically affected by the pandemic. The loans accompanied by credit guarantees are being used to make up for revenue deficits, not for profitable capital investment, so many companies will likely have difficulty paying off these loans in the future unless they successfully transform their business model for the post- COVID-19 era.

Issue : 62

Real-Time Real Economic Activity Entering the Pandemic Recession

From the Great recession to the pandemic recession

Entering the Pandemic Recession, we study the high-frequency real-activity signals provided by a leading nowcast, the ADS Index of Business Conditions produced and released in real-time by the Federal Reserve Bank of Philadelphia. We track the evolution of real-time vintage beliefs and compare them to a later-vintage chronology. Real-time ADS plunges and then swings as its underlying economic indicators swing, but the ADS paths quickly converge to indicate a return to brisk positive growth by mid-May. We show, moreover, that the daily real activity path was extremely highly correlated with the daily COVID-19 path. Finally, we provide a comparative assessment of the real-time ADS signals provided when exiting the Great Recession.

Buying the Vote? The Economics of Electoral Politics and Small Business Loans

Electoral Politics and Small Business Loans

Ran Duchin and John Hackney

We study the role of electoral politics in government small business lending, employment, and business formation. We construct novel measures of electoral importance capturing swing and base voters using data from Facebook ad spending, independent political expenditures, the Cook Political Report, and campaign contributions. We find that businesses in electorally important states, districts, and sectors receive more loans following the onset of the Covid-19 crisis, controlling for funding demand and both health and economic conditions. Estimates from survey and observational data show that government funding weakens the adverse effects of the crisis on employment, small business activity, and business applications.

Growth forecasts and the Covid-19 recession they convey: end-2020 update

Growth forecasts at end-2020

The paper updates the results in Gómez-Pineda (2020) about the depth, length and shape of the covid-19 recession using information up to the December-2020 forecast vintage. The method is a decomposition of output between potential output and the output gap, the former explained by supply shocks and the later, by demand shocks. We find that, compared to the July-2020 forecast vintage, in the December-2020 forecast vintage the median depth of the recession improved 1.1 percentage points in advanced economies while deteriorated 2.3 percentage points in emerging and developing economies. This change in the outlook may be explained by the increase in the prevalence of the disease in the second half of 2020 in emerging and developing economies as well as by the more limited reach of monetary and fiscal policies in emerging and developing economies. The recession is still V-shaped with partial recovery in advanced economies and L-shaped in emerging and developing economies. The results point to the relevance and urgency of policies to support emerging and developing economies.

The economics of stop-and-go epidemic control

Stop-and-go epidemic control

Claudius Gros and Daniel Gros

We analyse ‘stop-and-go’ containment policies which produce infection cycles as periods of tight lock-downs are followed by periods of falling infection rates, which then lead to a relaxation of containment measures, allowing cases to increase again until another lock-down is imposed. The policies followed by several European countries seem to fit this pattern. We show that ’stop-and-go’ should lead to lower medical costs than keeping infections at the midpoint between the highs and lows produced by ’stop-and-go’. Increasing the upper and reducing the lower limits of a stop-and-go policy by the same amount would lower the average medical load. But, increasing the upper and lowering the lower limit while keeping the geometric average constant would have the opposite impact. We also show that with economic costs proportional to containment, any path that brings infections back to the original level (technically a closed cycle) has the same overall economic cost.

Consumption Responses to COVID-19 Payments: Evidence from a Natural Experiment and Bank Account Data

Consumption Responses to stimulus payments

So Kubota, Koichiro Onishi and Yuta Toyama

We document households’ spending responses to a stimulus payment in Japan during the COVID-19 pandemic. The Japanese Government launched a universal cash entitlement program offering a sizable lump sum of money to all residents to alleviate the financial burden of the pandemic on households. The timings of cash deposits varied substantially across households due to unexpected delays in administrative procedures. Using a unique panel of 2.8 million bank accounts, we find an immediate jump in spending during the week of payments, followed by moderately elevated levels of spending that persist for more than a month. The implied marginal propensity to consume is 0.49 within 6 weeks. We also document sizable heterogeneity in consumption responses by recipients’ financial status and demographic characteristics. In particular, liquid asset holdings play a more crucial role than total asset holdings, suggesting the importance of the wealthy hand-to-mouth.

The Effect of Mandatory Child Care Center Closures on Women’s Labor Market Outcomes During the COVID-19 Pandemic

Child Care Closures and Women’s Work

Lauren Russell and Chuxuan Sun

The COVID-19 pandemic has had a dramatic effect on women’s labor market outcomes. We assess the effects of state-level policies that mandated the closure of child care centers or imposed class size restrictions using a triple-differences approach that exploits variation across states, across time, and across women who did and did not have young children who could have been affected. We find some evidence that both of these policies increase the unemployment rate of mothers of young children in the short term. In the long-term, the effects of mandated closures on unemployment become even larger and persist even after states discontinue closures, consistent with a permanent child care supply side effect.

Rightly blamed the ‘bad guy’? Grandparental child care and Covid-19

Christina Boll and Till Nikolka

This study explores the link between regular grandparental child care and Sars-CoV-2 infection rates at the level of German counties. In our analysis, we suggest that a region’s infection rates are shaped by region-, household- as well as individual-specific parameters. We extensively draw on the latter, exploring the inner- and outer-family mechanisms fueling individual contact frequency to test the potential role of regular grandparental child care in explaining overall infection rates. We combine aggregate survey data with local administrative data for German counties and find a positive correlation between the frequency of regular grandparental child care and local Sars-CoV-2 infection rates. However, statistical significance of this relationship breaks down as soon as potentially confounding factors, in particular the local Catholic population share, are controlled for. Our findings do not provide valid support for a significant role of grandparental child care in driving Sars-CoV-2 infections and rather suggest that the frequency of outer-family contacts driven by religious communities might be a more relevant channel in this context. Our results cast doubt on simplistic narratives postulating a link between intergenerational contacts and infection rates.

Issue : 61

The Value of a Cure: An Asset Pricing Perspective

Viral V. Acharya, Timothy Johnson, Suresh Sundaresa and Steven Zheng

We provide an estimate of the value of a cure using the joint behavior of stock prices and a vaccine progress indicator during the ongoing COVID-19 pandemic. Our indicator is based on the chronology of stage-by-stage progress of individual vaccines and related news. We construct a general equilibrium regime-switching model of repeated pandemics and stages of vaccine progress wherein the representative agent withdraws labor and alters consumption endogenously to mitigate health risk. The value of a cure in the resulting asset-pricing framework is intimately linked to the relative labor supply across states. The observed stock market response to vaccine progress serves to identify this quantity, allowing us to use the model to estimate the economy-wide welfare gain that would be attributable to a cure. In our estimation, and with standard preference parameters, the value of the ability to end the pandemic is worth 5-15% of total wealth. This value rises substantially when there is uncertainty about the frequency and duration of pandemics. Agents place almost as much value on the ability to resolve the uncertainty as they do on the value of the cure itself. This effect is stronger – not weaker – when agents have a preference for later resolution of uncertainty. The policy implication is that understanding the fundamental biological and social determinants of future pandemics may be as important as resolving the immediate crisis.

Are Banks Catching Corona? Effects of COVID on Lending in the U.S.

Are Banks Catching Corona?

Thorsten Beck and Jan Keil

We exploit geographic variation in the exposure of US banks to COVID-19 and lockdown policies to document the impact of the pandemic and consequent economic crisis on banks. Combining county-level data on COVID-19 and lockdown policies with bank-level data on loan performance and lending growth, and syndicated loan data, we document that banks geographically more exposed to the pandemic and lockdown policies show (i) an increase in loan loss provisions and non-performing loans, (ii) an increase in lending to small businesses, but not in other lending categories, and (iii) an increase in interest spreads and decrease in loan maturities. These findings show that banks have already seen the negative impact of the pandemic and have reacted to higher lending risk with an adjustment in loan conditionality, but have also responded to higher loan demand and government support programmes.

U.S. Churches’ Response to Covid-19: Results from Facebook

Eva Raiber and Paul Seabright

This study investigates U.S. churches’ response to the SARS-CoV-2 pandemic by looking at their public Facebook posts. For religious organizations, in-person gatherings are at the heart of their activities. Yet religious in-person gatherings have been identified as some of the early hot spots of the pandemic, but there has also been controversy over the legitimacy of public restrictions on such gatherings. Our sample contains information on church characteristics and Facebook posts for nearly 4000 churches that posted at least once in 2020. The share of churches that offer an online church activity on a given Sunday more than doubled within two weeks at the beginning of the pandemic (the first half of March 2020) and stayed well above baseline levels. Online church activities are positively correlated with the local pandemic situation at the beginning, but uncorrelated with most state interventions. After the peak of the first wave (mid April), we observe a slight decrease in online activities. We investigate heterogeneity in the church responses and find that church size and worship style explain differences consistent with churches facing different demand and cost structures. Local political voting behavior, on the other hand, explains little of the variation. Descriptive analysis suggests that overall online activities, and the patterns of heterogeneity, remain unchanged through end-November 2020.

Spatial Implications of Telecommuting

Matthew J. Delventhal and Andrii Parkhomenko

If the 2020 surge in working from home became permanent, how would the distribution of jobs and residents within and across U.S. cities change? To study this question, we build a quantitative spatial equilibrium model of job and residence choice with commuting frictions between 4,502 sub-metropolitan locations in the contiguous U.S.A novel feature of our model is the heterogeneity of workers in the fraction of time they work on-site: some workers commute daily, some always work at home, while others alternate between working on-site and remotely. In a counterfactual where remote work becomes more common, residents move from central to peripheral areas within cities, and from large coastal to small interior cities, on average. The reallocation of jobs is less monotonic, with increases both in peripheral locations and in the highest-productivity metropolises. Agglomeration externalities from in-person interactions are crucial for welfare effects. If telecommuters keep contributing to productivity as if they worked on-site, better job market access drives considerable welfare gains, even for those who continue to commute. But if productivity declines in response to the reduction in face-to-face interactions, wages fall and most workers are worse off.

Covid-19, trade collapse and GVC linkages: European experience

Global value chains in Europe

Katja Zajc Kejžar and Alan Velić

This paper aims to highlight the role of supply chain linkages for the transmission of Covid-19 induced shocks based on the monthly trade of the European Union member states. The paper distinguishes demand and supply shocks as of either domestic or partner country origin and further characterizes the role of the latter based on the bilateral GVC positions, thereby taking into account the possibility of transmission through forward and backward linkages. Using the framework of the gravity model, we find a general decline in trade following the Covid-19 outbreak and significantly negative trade effects associated with Covid-19 cases per capita in both origin and destination country. The combined trade effect of Covid-19 is almost minus 20% for both exports and imports, taking into account the average Covid-19 infection rates in the EU and partner countries from April 2020. While export decreases twice as much in response to an increase in the current number of Covid-19 cases in the destination country than in the origin country, it becomes more sensitive to the Covid-19 situation in the origin country over time, suggesting that import demand shocks have a more immediate effect than export supply ones. Moreover, the results confirm that forward GVC linkages act as a channel for the transmission of (demand) shocks in the supply chain trade. An increase in the incidence of destination’s Covid-19 cases, namely, induces a steeper decline in domestic exports of intermediate products in those destinations with which a country has stronger forward linkages, i.e. in partners positioned further downstream. On the other hand, we fail to find robust evidence for the transmission of Covid-19-induced shocks via backward linkages.

Issue : 60

Divided we fall: International health and trade coordination during a pandemic

International Health and Trade Coordination

Viral Acharya, Zhengyang Jiang, Robert J. Richmond and Ernst-Ludwig von Thadden

We analyse the role of international trade and health coordination in times of a pandemic by building a two-economy, two-good trade model integrated into a micro-founded SIR model of infection dynamics. Uncoordinated governments with national mandates can adopt (i) containment policies to suppress infection spread domestically, and (ii) (import) tariffs to prevent infection coming from abroad. The efficient, i.e., coordinated, risk-sharing arrangement dynamically adjusts both policy instruments to share infection and economic risks internationally. However, in Nash equilibrium, uncoordinated trade policies robustly feature inefficiently high tariffs that peak with the pandemic in the foreign economy. This distorts terms of trade dynamics and magnifies the welfare costs of tariff wars during a pandemic due to lower levels of consumption and production as well as smaller gains via diversification of infection curves across economies.

Hang in there: Stock market reactions to withdrawals of COVID-19 stimulus measures

Stock markets dislike early stimulus withdrawal

Jorge A. Chan-Lau and Yunhui Zhao

The COVID-19 pandemic crisis has triggered unprecedented stimulus policy responses by countries worldwide, particularly fiscal stimulus measures. Given the high fiscal costs, some countries have withdrawn such measures, and other countries are contemplating doing so. In this paper, we empirically examine the impact of the withdrawal of fiscal stimulus policies on stock markets using daily data. To this end, we construct a database of withdrawal events and examine the difference between the pre- and post-event stock price returns using event study analysis and cross-country regressions. The results show a significant negative reaction when stimulus is withdrawn prematurely, i.e., when the daily COVID cases were still high relative to the historical pattern, a reaction which can be compounded by social unrest. The results suggest that markets are concerned about the negative impact of early withdrawals of stimulus on the economic recovery prospect, a risk that policymakers have to account for while contemplating the exit strategy from the exceptional crisis-fighting policies.

Family ties and the pandemic: Some evidence from Sars-CoV-2

Luca Di Gialleonardo, Mauro Marè, Antonello Motroni and Francesco Porcelli

This paper provides an empirical analysis of the relationship between the strength of family ties and the spread of Sars-CoV-2. The dataset is constructed for a cross-section of 63 countries combining different data sources, to cover seven dimensions: the spread of the virus, family ties, trust and religion, policies implemented to stop the outbreak, status of the economy, geography, demography. We observe a robust positive relationship between family ties and the contagion rate across the world; in particular, the attitude of parents towards the wellbeing for their children is the main force that drives the positive correlation with the contagion. Instead, the respect toward parents (the variable love-parents) seems to be a component of the family ties which negatively correlates with the diffusion of Sars-CoV-2, leading to the final quadratic relationship between the overall family ties strength and the spread of the virus. As conclusive evidence, we observe that the death rate, as well as the recovery rate, are not affected by the strength of family ties and other social capital variables. What matters, in this case, are structural variables like GPD, number of hospital beds per capita, life expectance, median age and geographical location.

Centralisation, voter perception, and the sense of government unpreparedness during the COVID-19 pandemic in Italy

The blame game: centralisation hurts mayors

Massimiliano Ferraresi and Gianluca Gucciardi

In this article, we rely on a periodic public opinion poll indicator of the performance of the mayor, collected for 103 large cities in Italy and in three waves (2015, 2017, and 2020), to examine whether and to what extent the exogenous shift in policy-making decisions induced by the COVID-19 pandemic has affected citizens’ perceptions regarding attributions of responsibility. We leverage the variation in political alignment between central and local governments and implement a difference-in-differences research design, finding that when decisions are fully centralised (during the lockdown), the voter approval for the mayor of an aligned city decreases by of around 7%. Further analyses suggest that our results are more marked (i) during pre-electoral years as compared to other years of a term and (ii) in cities with a lower level of social capital. Lastly, we document that the decrease in the approval ratings of mayors observed in aligned cities reflects a sense of ‘punishment’ for the lack of central government preparedness against the pandemic.

Local economies amidst the COVID-19 crisis in Italy:a tale of diverging trajectories

Augusto Cerqua and Marco Letta

Impact evaluations of the microeconomic effects of the COVID-19 upheavals are essential but nonetheless highly challenging. Data scarcity and identification issues, due to the ubiquitous nature of the exogenous shock, account for the current dearth of counterfactual studies. To fill this gap, we combine up-to-date quarterly local labor markets (LLMs) data, collected from the Business Register kept by the Union of the Italian Chambers of Commerce, with the machine learning control method for counterfactual building. This allows us to shed light on the pandemic’s impact on the local economic dynamics of one of the hardest-hit countries, Italy. We document that the shock has already caused a moderate drop in employment and firm exit and an abrupt decrease in firm entry at the country level. More importantly, these effects have been dramatically uneven across the Italian territory and spatially uncorrelated with the epidemiological pattern of the first wave. We then use the estimated individual treatment effects to investigate the main predictors of such unbalanced trajectories, finding that the heterogeneity of impacts is primarily associated with interactions among the exposure of economic activities to high social aggregation risks and pre-existing labor market fragilities. These results call for immediate place- and sector-based policy responses.

Short-term trade-off between stringency and economic growth

The coronavirus disease (COVID-19) represents a simultaneous health and economic shock for the vast majority of countries around the world and a wide range of Non-Pharmaceutical Interventions (NPIs) have been used by policymakers to mitigate its spread. It is recognised that this entails an implicit trade-off between health and economic outcomes. This paper investigates this trade-off for 106 developed and developing countries by linking NPIs with quarterly economic growth outcomes. The results indicate that the NPIs that negatively affect growth differ between Advanced Economies (AEs) and Emerging Market and Developing Economies (EMDEs). Testing policy was found to have helped in mitigating the negative economic impact in EMDEs. COVID-19 mortality had a larger impact in EMDEs compared to AEs. Overall, the results might suggest a more favourable short-term trade-off between stringency and economic growth for policymakers in EMDEs. However, this does not account for longer-term economic outcomes.

Issue : 59

Consumption Dynamics in the COVID Crisis: Real Time Insights from French Transaction & Bank Data

Consumption Across Income Groups

David Bounie, Youssouf Camara, Etienne Fize, John Galbraith, Camille Landais, Chloe Lavest, Tatiana Pazem and Baptiste Savatier

We use anonymised transaction and bank data from France to document the evolution of consumption and savings dynamics since the onset of the pandemic. We find that consumption has dropped very severely during the nation-wide lockdown but experienced a strong and steady rebound during the Summer, before faltering in late September. This drop in consumption was met with a significant increase in aggregate households’ net financial wealth. This excess savings is extremely heterogenous across the income distribution: 50% of excess wealth accrued to the top decile. Households in the bottom decile of the income distribution experienced a severe decrease in consumption, a decrease in savings and an increase in debt. We estimate marginal propensities to consume and show that their magnitude is large, especially at the bottom of the income and liquidity distributions.

Is COVID-19 a consumption game changer? Evidence from a large-scale multi-country survey

Consumption After the Pandemic

Alexander Hodbod, Cars Hommes, Stefanie J. Huber and Isabelle Salle

Prospective economic developments depend on the behavior of consumer spending. A key question is whether private expenditures recover once social distancing restrictions are lifted or whether the COVID-19 crisis has a sustained impact on consumer confidence, preferences, and, hence, spending. Changes in consumer behavior may not be temporary, as they may reflect long-term changes in attitudes arising from the COVID-19 experience. This paper uses data from a representative consumer survey in five European countries conducted in summer 2020, after the release of the first wave’s lockdown restrictions. We document the underlying reasons for households’ reduction in consumption in five key sectors: tourism, hospitality, services, retail, and public transports. We identify a large confidence shock in the Southern European countries and a permanent shift in consumer preferences in the Northern European countries. Our results suggest that horizontal fiscal support to all firms risks creating zombie firms and would hinder necessary structural changes to the economy.

Concierge Treatment from Banks: Evidence from the Paycheck Protection Program

State Guarantee and Connected Loans

Ran Duchin, Xiumin Martin, Roni Michaely, and Ivy Wang

We use the Paycheck Protection Program (PPP), a central piece of the 2020 CARES Act, as a laboratory to separate between favoritism and informational advantages in lending relationships. The PPP mutes information frictions because loans are fully guaranteed by the government and banks need not screen borrowers. We find that firms with prior lending relationships or personal connections to bank executives are more likely to obtain PPP loans. These effects lead to allocative distortions that force connected firms to return their loans. Consistent with favoritism, the role of connections is weaker when the likelihood of detection is higher.

How Effective Is Social Distancing?

We identify the effects of social distancing policy on reducing the transmission of the COVID-19 spread. We build a model that measures the relative frequency and geographic distribution of COVID-19 infections and provides hypothetical infection distribution in the counties that enacted social distancing policy. We apply the model to a panel of daily COVID-19 infection cases of all counties in the United States and find social distancing lowered the average daily infection cases by 12%. We further provide evidence that the effects are heterogeneous in an individual’s income, race, education, and political belief.

Issue : 58

COVID-19 diagnosis and viral load reporting: A theory of overdiagnosis and undertesting

Overdiagnosis and Undertesting

Tinglong Dai and Shubhranshu Singh

The ongoing discourse about COVID-19 testing revolves around undertesting (i.e., insufficient testing capacity relative to demand). An important yet little studied systematic issue is overdiagnosis (i.e., positive diagnoses for patients with negligible viral loads): recent evidence shows U.S. laboratories have adopted a hyper-sensitive diagnosis criterion for COVID-19 testing, such that up to an estimated 90% of positive diagnoses are for minuscule virus loads. Motivated by this situation, we develop a theory of testing for COVID-19 that explains both undertesting and overdiagnosis. We show that a laboratory has an incentive to inflate the diagnosis criterion, which generates a higher diagnosis-driven demand as a result of contact-tracing efforts, albeit while dampening demand from disease transmission. An inflated diagnosis criterion prompts the laboratory to build a higher testing capacity, which may not fully absorb the inflated demand, so undertesting arises. Finally, we examine a social planner’s problem of whether to mandate the laboratory to report viral load along with its diagnosis, such that a physician or contact tracer can make informed triage decisions. The social planner may prefer not to mandate viral load reporting, because it induces a higher testing capacity and may help reduce disease transmission.

The macroeconomics of age-varying epidemics

Marta Giagheddu and Andrea Papetti

We incorporate age-specific socio-economic interactions in a SIR macroeconomic model to study the role of demographic factors for the COVID-19 epidemic evolution, its macroeconomic effects and possible containment measures. We capture the endogenous response of rational individuals who freely reduce consumption- and labor-related personal exposure to the virus, with interactions that can vary within and across ages, while fail to internalize the impact of their actions on others. The endogenous response amplifies the economic losses, but it implies that the individual behavioral response to the risk of infection is an important ally of the needed policy measures to contain the spread of the virus. Investigating the effect of different combinations of economic shutdown and age-targeted social distancing, we find that there are considerable economic benefits from measures targeting the elderly with higher mortality risk which are not part of the labor force. For any level of social distancing, the implied optimal economic shutdown generates small gains in terms of lives and large output losses over one-year time. These results are confirmed by calibrating the model to match real epidemic and economic data in the context of a scenarios exercise.

Trade-off between health and wealth? Insights from COVID-19 in South Korea

Consumption in South Korea

Changyong Kim, Estefania Santacreu-Vasut and Edward Keunuk Shin

Understanding the immediate consequences of the COVID-19 pandemic on consumer behaviour is essential for informing the policy makers on the economic cost of strict measures, such as population lockdowns and business shutdowns. Yet, estimating the effect of the health shock on consumption, net of policy restrictions, is challenging because such measures affect consumer choices. South Korea is an interesting case because its policy response in the early stages of the pandemic did not involve such restrictive measures. We exploit this fact to study the consequences of the health shock on consumption. Because the intensity of the pandemic varied greatly across administrative regions, we are able to quantify the direct effect of the health shock on consumption at the epicentre of the pandemic and to compare it with that in locations initially spared from the virus. Further, we quantify spillover effects from the epicentre to the periphery by studying changes in consumption outside of the epicentre. Our results show that consumers adjusted their response as a function of the local and national evolution of the pandemic, refraining from exposing themselves to the health risk in cities and sectors that are relatively more exposed to the virus. This implies that consumers’ voluntary response to the pandemic can contribute to alleviate the trade-off between health and economic objectives, minimising the economic cost and mitigating the spread of the virus.

Online learning during school closure due to COVID-19

Online Learning When Schools are Closed

Masato Ikeda and Shintaro Yamaguchi

This paper estimates the effects of school closure on students’ study time and the number of messages sent from teachers to students using an online learning service. We find that both study time and message numbers increased significantly from the beginning of the school closure but they returned to pre-COVID-19 levels when the state of emergency ended in late May 2020. In addition, we find that students with prior access to the online learning service at home and students at higher-quality schools increased their study time more than other students. However, we find no gender differences in these outcomes.

Issue : 57

Who should get it first? Public preferences for distributing a COVID-19 vaccine

Who Should be Vaccinated First?

Jeroen Luyten, Sandy Tubeuf, Roselinde Kessels

Once a safe COVID-19 vaccine will become available, there will not be enough supply of it to vaccinate the entire population. Policy makers at national and international level are currently developing vaccine prioritization strategies. However, it is important that these strategies have sufficient levels of public support. We conducted a ranking exercise and a discrete choice experiment on a representative sample of 2,000 Belgians in order to elicit their preferences regarding how to distribute the COVID-19 vaccine across the population. We identified that three sub-groups had similarly high levels of support for access priority: the chronically ill, essential professions, and individuals likely to spread the virus the most. We identified two clusters of respondents. While both wanted to vaccinate essential professions, cluster one (N=1058) primarily wanted to target virus spreaders whereas cluster two (N=886) wanted to prioritize the chronically ill. Prioritizing those over 60 years of age was remarkably unpopular. Other strategies such as allocating the vaccine using a ‘lottery’, ‘first-come, first-served’ approach or willingness-to-pay received little support. Public opinion is a key variable for a successful engaged COVID-19 vaccination policy. A strategy simultaneously prioritizing medical risk groups, essential professions and spreaders seems to be most in line with societal preferences. When asked to choose, people agree to vaccinate essential professions but disagree whether to prioritise people with high-medical risk or virus spreaders.

Do Masks Reduce COVID-19 Deaths? A County Level Analysis using IV

I examine the relationship between mask usage and COVID-19 deaths at the county level. When examining this relationship, even the direction caused by the potential endogeneity bias is unclear. In one direction, characteristics that are known to correlate with a larger amount of potential COVID-19 deaths, such as an older population, may make people more likely to wear masks. This will cause a bias that makes mask usage look less effective than it truly is. In the other direction, areas with higher risk tolerances may have less mask usage, but may at the same time be engaging in other behavior that puts them at higher risk for contracting COVID-19. This will cause a bias that makes mask usage look more effective than it truly is. The identification approach exploits a large set of controls and employs percentage of vote for Donald Trump in the 2016 election as an instrumental variable for mask usage. The main finding is that a one percentage point increase in the amount of individuals who say they often or frequently wear a mask when within six feet of people will reduce COVID-19 deaths in a county by 10.5%, or six deaths in the average sized county.

Aggregate and Intergenerational Implications of School Closures: A Quantitative Assessment

School Closures: Long-term Implications

Youngsoo Jang, Minchul Yum

A majority of governments around the world unprecedentedly closed schools in response to the COVID-19 pandemic. This paper quantitatively investigates the macroeconomic and distributional consequences of school closures through intergenerational channels in the medium- and long-term. The model economy is a dynastic overlapping generations general equilibrium model in which schools, in the form of public education investments, complement parental investments in producing children’s human capital. We calibrate the stationary equilibrium of the model to the U.S. economy and compute the equilibrium responses following unexpected school closure shocks. We find that school closures have moderate long-lasting adverse effects on macroeconomic aggregates such as output. In addition, we find that school closures reduce intergenerational mobility, especially among older children. Finally, we find that lower substitutability between public and parental investments induces larger damages in the aggregate economy and overall lifetime incomes of the affected children, while mitigating negative impacts on intergenerational mobility. In all findings, heterogeneous parental responses to school closures play a key role. Our results provide a quantitatively relevant dimension to consider for policymakers assessing potential costs of school closures.

Polarized Politics of Pandemic Response and the Covid-19 Connectedness Across the U.S. States

Sate Government and Community Reponses in the US

Umut Akovali & Kamil Yilmaz

This paper investigates the state-level differences in government and community responses to the Covid-19 pandemic, leading to different growth trajectories of Covid-19 cases and their connectedness across the U.S. states. Our regression analysis shows that higher growth trajectories are observed in the states that implemented the lax government and community response to the pandemic. Moving to the analysis of spillovers/connectedness of Covid-19 cases across the states, we apply the Diebold-Yilmaz connectedness methodology to the growth rates of Covid-19 cases. Using the total directional connectedness measures, we find that the states with lax government and community response generated connectedness of Covid-19 cases to others. These findings are also supported by the secondary regression analysis of pairwise connectedness measures over time. Finally, the travel intensity between the pairs of states, indirectly measured by the data on smartphone location exposure, contributes significantly to the pairwise directional connectedness of Covid-19 across the states.

Monitoring in real time: cross-country evidence on the COVID-19 impact on GDP growth in the first half of 2020

GDP Growth in the First Half of 2020

Michael König and Adalbert Winkler

The COVID-19 pandemic has a severely negative impact on economic activity. We analyze whether and to what extent mandatory social distancing imposed by lockdown policies and voluntary social distancing triggered by COVID-19 fatality rates have driven growth developments in the first and second quarter of 2020. Based on a sample of 46 countries and making use of OLS, IV and panel fixed effects regressions we find that the stringency of lockdown policies drives growth developments over time, while fatality rates carry an additional weight in explaining cross-country growth differences for each quarter. Finally, vulnerabilities to mandatory and social distancing performed abroad captured by tourism exposure and trade openness, play a non-negligible role in explaining growth differences across countries in the first half of 2020.

Issue : 56

Great expectations: Social distancing in anticipation of pharmaceutical innovations

When Vaccines or Treatments are Expected

Miltiadis Makris and Flavio Toxvaerd

This paper analyzes equilibrium social distancing behavior when pharmaceutical innovations, such as effective vaccines and treatments, are anticipated to arrive. Once such innovations arrive, costly social distancing can be reduced. We characterize how the anticipation of such innovations influences pre-innovation social distancing. When vaccines are anticipated, equilibrium social distancing is ramped up as the arrival date approaches to increase the probability of reaching the post-innovation phase in the susceptible state. In contrast, under anticipated treatment, equilibrium social distancing is phased out by the time of arrival. We compare the equilibrium paths with the socially optimal counterparts and discuss policy implications.

Business Restrictions and Covid Fatalities

Matthew Spiegel and Heather Tookes

We hand-collect a time-series database of business closures and related restrictions for every county in the United States since March 2020. We then relate these policies to future growth in deaths due to Covid-19. To our knowledge, ours is the most comprehensive database of U.S. Covid-19 business policies that has been assembled to date. Across specifications, stay-at-home orders, mandatory mask requirements, beach and park closures, restaurant closures, and high risk (Level 2) business closures are the policies that most consistently predict lower 4- to 6- week-ahead fatality growth. For example, baseline estimates imply that a county with a mandatory mask policy in place today will experience 4- week and 6- week ahead fatality growth rates that are each 1% lower (respectively) than a county without such an order in place. This relationship is significant, both statistically and in magnitude. It represents 12% of the sample mean of weekly fatality growth. The baseline estimates for stay-at-home, restaurant and high-risk business closures are similar in magnitude to what we find for mandatory mask policies. We fail to find consistent evidence in support of the hypothesis that some of the other business restrictions (such as spa closures, school closures, and the closing of the low- to medium- risk businesses that are typically allowed in Phase I reopenings) predict reduced fatality growth at four-to-six- week horizons. Some policies, such as low- to medium- business risk closures may even be counterproductive. To address potential endogeneity concerns, we conduct two tests. First, we exploit the fact that many county regulations are imposed at the state-level through Governors’ executive orders. Following the intuition that smaller counties often inherit state-level regulations that are intended to reduce transmission and deaths in more populous regions, we remove the 5 most populous counties in each state from the sample. In the second test, we match counties that lie near (but not on) state borders to counties in different states that are also near (but not on) state borders and are within 100 miles of that county. Absent policy differences, these nearby counties should see similar trends in virus transmission; making them good controls. We continue to find that stay-at-home, mandatory masks, beach and park closures, restaurant closures, and high risk business closures all predict declines in future fatality growth.

Disentangling the effect of government restrictions and consumers’ reaction function to the Covid-19 pandemic: Evidence from geo-located transactions data for the Netherlands

Consumption Under Lockdown and Local Infections

Pascal Golec, George Kapetanios, Nora Neuteboom, Feiko Ritsema and Alexia Ventouri

Using transaction data from 2 million customers of ABN AMRO bank, this paper distinguishes the economic effects of voluntary responses to Covid-19 from those attributable to government lockdown measures. We compare municipalities that experienced large Covid-19 outbreaks with municipalities that had few or no cases, and ﬁnd that the scale of the outbreak in a municipality has a strong negative effect on physical transactions by consumers, including for sectors that were allowed to stay open during the lockdown. We show that these responses are correlated with the intensity of the local outbreak rather than provoked by general perceptions of the outbreak. Our findings imply that the reaction function of the consumer stimulates self-isolation, which has a negative economic impact at the local level. Therefore, one potential path for long-term economic recovery is to diminish the effect of fear and restore consumer confidence by addressing the spread of the virus itself.

Preventing COVID-19 Fatalities: State versus Federal Policies

State versus Federal Policies

J.-P. Renne, G. Roussellet, and G. Schwenkler

Are COVID-19 fatalities large when a federal government does not impose containment policies and instead allow states to implement their own policies? We answer this question by developing a stochastic extension of a SIRD epidemiological model for a country composed of multiple states. Our model allows for interstate mobility. We consider three policies: mask mandates, stay-at-home orders, and interstate travel bans. We fit our model to daily U.S. state-level COVID-19 death counts and exploit our estimates to produce various policy counterfactuals. While the restrictions imposed by some states inhibited a significant number of virus deaths, we find that more than two-thirds of U.S. COVID-19 deaths could have been prevented by late September 2020 had the federal government imposed federal mandates as early as some of the earliest states did. Our results highlight the need for early actions by a federal government for the successful containment of a pandemic.

The impact of supply-chain networks on interactions between the anti-COVID-19 lockdowns in different regions

Supply Chain Networks Across Regions and Lockdown Effects

Hiroyasu Inoue, Yohsuke Murase and Yasuyuki Todo

To prevent the spread of COVID-19, many cities, states, and countries have `locked down’, restricting economic activities in non-essential sectors. Such lockdowns have substantially shrunk production in most countries. This study examines how the economic effects of lockdowns in different regions interact through supply chains, a network of firms for production, simulating an agent-based model of production on supply-chain data for 1.6 million firms in Japan. We further investigate how the complex network structure affects the interactions of lockdowns, emphasising the role of upstreamness and loops by decomposing supply-chain flows into potential and circular flow components. We find that a region’s upstreamness, intensity of loops, and supplier substitutability in supply chains with other regions largely determine the economic effect of the lockdown in the region. In particular, when a region lifts its lockdown, its economic recovery substantially varies depending on whether it lifts lockdown alone or together with another region closely linked through supply chains. These results propose the need for inter-region policy coordination to reduce the economic loss from lockdowns.

Reopening the economy and food security

The COVID-19 pandemic has posed major challenges, of which food insecurity is one, to countries across the world. A number of policies have been put in place in response to the development of the outbreak. In this paper, I investigate the impacts of one of these policies, the reopening of the economy, on food security. Using a recent large-scale household survey in the United States, I find that food insecurity is a major problem that could adversely affect people’s health. Using a report on containment policy across states in the United States to construct the level of this policy, I also find that this policy reduced the likelihood of food insecurity. While the overall impact of this policy is expected, how it influenced the causes of food security is more interesting. In particular, while it helped to increase the availability of food to the people in need, it decreased their ability to buy food. Not only reopening policy increased the expenses on food, which made food less affordable, it also had adverse effect on people’s health which prevented them from going out to buy food. I also show how effective the multiple food programs were in the presence of reopening policy. These findings provide valuable evidence to policy makers in mitigating the impacts of the COVID-19 crisis.

Issue : 55

Optimal testing and social distancing of individuals with private health signals

Private Information and Testing

We consider individuals who are privately informed about the probability of being infected by a potentially dangerous disease. Depending on its private health signal, an individual may assign a positive or negative value to getting tested for the disease. Individuals dislike social distancing. The government has scarce testing capacities and scarce resources for enforcing social-distance keeping. We solve the government’s problem of setting up an optimal testing-and-social-distancing schedule, taking into account that individuals may lie about their private health signal. Rather than modelling the infection dynamics, we take a snapshot view, that is, we ask what should be done at a particular point in time to curb the current spread of the disease while taking the current well-being of the individuals into account as well. If testing capacities are sufficiently scarce, then it can be optimal to test only a randomly selected fraction of those who want to be tested, and require maximal social distancing precisely for those individuals who wanted a test and ended up not belonging to the tested fraction.

What comes next: Scenarios for the recovery

The Covid crisis prompted an unprecedented global economic contraction. Although the worst is likely behind us, the recovery is likely to be uneven, with economic activity in many customer-facing service industries set to remain constrained for some time. I use a quantitative multi-industry model to estimate the economic forces that explain the decline in economic activity in the United States, the Euro Area, Japan and China in the first half of 2020. I then use the model to project the trajectory of the economic recovery. I find that the US, EA and Japan will each face a `98% economy’ if half of the constraints faced by customer-facing service industries in the first half of 2020 persist. The economic recovery in China is projected to occur more quickly.

COVID-19, public procurement regimes and trade policy

Bernard Hoekman, Anirudh Shingal, Varun Eknath and Viktoriya Ereshchenko

This paper analyzes a prominent dimension of the initial policy response to the COVID-19 pandemic observed in many countries: the imposition of export restrictions and actions to facilitate imports. Using weekly data on the use of trade policy instruments during the first seven months of the COVID-19 pandemic (January-July, 2020) we assess the relationship between the use of trade policy instruments and attributes of pre-crisis public procurement regulation. Controlling for country size, government effectiveness and economic factors, we find that use of export restrictions targeting medical products is strongly positively correlated with the total number of steps and average time required to complete procurement processes in the pre-crisis period. Membership of trade agreements encompassing public procurement disciplines is associated with actions to facilitate trade in medical products. These findings suggest future empirical assessments of the drivers of trade policy during the pandemic should consider public procurement systems.

Industrialization under Medieval Conditions? Global Development after COVID-19

Industrialisation Under Medieval Conditions?

Industrialization is vital for inclusive and sustainable global development. The two engines of industrialization – innovation and trade – are in danger of being compromised by the COVID-19 pandemic, under conditions increasingly reminiscent of the medieval world. It comes at a time when innovation had already been stagnating under guild-like corporate concentration and dominance, and the multilateral trade system had been buckling under pressure from a return to mercantilist ideas. The COVID-19 pandemic may cause a permanent reduction in innovation and entrepreneurship and may even bring the 4th Industrial Revolution (4IR) to a premature end. Hence the post-COVID-19 world may be left with trade as the only engine for industrialization for the foreseeable future. If the global community fails to fix the multilateral trade system, the world may start to resemble the Middle Ages in other, even worse, aspects.

The Reallocation Effects of COVID-19: Evidence from Venture Capital Investments around the World

Venture Capital Around the World

Andrea Bellucci, Alexander Borisov, Gianluca Gucciardi and Alberto Zazzaro

We examine possible reallocation effects on venture capital (VC) investment due to the spread of COVID-19 around the globe. Exploiting the staggered nature of the pandemic and transaction-level data, we empirically document a shift of venture capital towards deals in pandemic-related categories. A difference-in-differences analysis estimates significant increases in invested amount and number of deals in such categories. We further highlight several heterogenous effects related to the experience of VC investors, their organizational form, and country of origin. Our results underscore the link between the spread of the pandemic and the functioning of the VC market around the world.

Issue : 54

Work, care and gender during the covid-19 crisis

Claudia Hupkau and Barbara Petrongolo

We explore impacts of the pandemic crisis and associated restrictions to economic activity on paid and unpaid work for men and women in the UK. Using data from the Covid-19 supplement of Understanding Society, we find evidence that labour market outcomes of men and women were roughly equally affected at the extensive margin, as measured by the incidence of job loss or furloughing, but if anything women suffered smaller losses at the intensive margin, experiencing slightly smaller changes in hours and earnings. Within the household, women provided on average a larger share of increased childcare needs, but in an important share of households fathers became the primary childcare providers. These distributional consequences of the pandemic may be important to understand its inequality legacy over the longer term.

Uncertainty, hysteresis and lockdowns

Uncertainty, Hysteresis and Lockdowns

Charles Sims and David Finnoff

Using currently available data we develop a benchmark scenario that finds that a publicly-imposed social distancing rule to curb the spread of COVID-19 ought to be implemented for 12 weeks. We also identify alternative scenarios where the shorter duration social distancing programs seen throughout the United States may be efficient. Our approach is novel in that it accounts for uncertainty in transmission of the disease and the potential for permanent economic effects of social distancing rules. The social distancing rule is treated as an asset whose benefit is uncertain due to the inability to predict the evolution of the disease. The novel features of our approach allow us to draw two conclusions about the efficient timing of public social distancing programs in response to COVID-19. First, uncertainty in transmission leads to a risk premium that creates a modest incentive to delay closing and reopening the economy. Second, hysteresis in economic impacts of social distancing leads to hysteresis in the efficient time to reopen the economy. Because reopening results in a second wave of infections that may be worse than expected and social distancing rules create permanent economic impacts, it is efficient to delay reopening the economy longer than suggested by benefit-cost analyses of social distancing programs. In our benchmark scenario, this bias results in reopening 27 days too soon.

Social Learning along International Migrant Networks

Yuan Tian, Maria Esther Caballero and Brian K. Kovak

We document the transmission of social distancing practices from the United States to Mexico along migrant networks during the early 2020 Covid-19 pandemic. Using data on pre-existing migrant connections between Mexican and U.S. locations and mobile-phone tracking data revealing social distancing behavior, we find larger declines in mobility in Mexican regions whose emigrants live in U.S. locations with stronger social distancing practices. We rule out confounding pre-trends and use a variety of controls and an instrumental variables strategy based on U.S. stay-at-home orders to rule out the potential influence of disease transmission and migrant sorting between similar locations. Given this evidence, we conclude that our findings represent the effect of information transmission between Mexican migrants living in the U.S. and residents of their home locations in Mexico. Our results demonstrate the importance of personal connections when policymakers seek to change fundamental social behaviors.

Urban Flight Seeded the COVID-19 Pandemic Across the United States

Urban Flight is Spreading Infections

Joshua Coven, Arpit Gupta and Iris Yao

We document large-scale urban flight in the United States in the wake of the COVID-19 pandemic. Populations that flee are disproportionately younger, whiter, and wealthier. Regions that saw migrant influx experience greater subsequent COVID-19 case growth, suggesting that urban flight was a vector of disease spread. Urban residents fled to socially connected areas, consistent with the notion that individuals were sheltering with friends and family or in second homes. The association of migration and subsequent case growth persists when instrumenting for migration with social networks, pointing to a causal association.

COVID-19 and the Future of US Fertility: What Can We Learn from Google?

The Future of US Fertility

Joshua Wilde, Wei Chen, and Sophie Lohmann

We use data from Google Trends to predict the effect of the COVID-19 pandemic on future births in the United States. First, we show that periods of above-normal search volume for Google keywords relating to conception and pregnancy in US states are associated with higher numbers of births in the following months. Excess searches for unemployment keywords have the opposite effect. Second, by employing simple statistical learning techniques, we demonstrate that including information on keyword search volumes in prediction models significantly improves forecast accuracy over a number of cross-validation criteria. Third, we use data on Google searches during the COVID-19 pandemic to predict changes in aggregate fertility rates in the United States at the state level through February 2021. Our analysis suggests that between November 2020 and February 2021, monthly US births will drop sharply by approximately 15%. For context, this would be a 50% larger decline than that following the Great Recession of 2008-2009, and similar in magnitude to the declines following the Spanish Flu pandemic of 1918-1919 and the Great Depression. Finally, we find heterogeneous effects of the COVID-19 pandemic across different types of mothers. Women with less than a college education, as well as Black or African American women, are predicted to have larger declines in fertility due to COVID-19. This finding is consistent with elevated caseloads of COVID-19 in low-income and minority neighborhoods, as well as with evidence suggesting larger economic impacts of the crisis among such households.

Issue : 53

Implications of Heterogeneous SIR Models for Analyses of COVID-19

Herd Immunity Could be Easy to Reach

This paper starts with a quick overview of results on the classic SIR model and variants allowing for heterogeneity in contact rates. It then notes several implications relevant to model calibrations and policy predictions. Calibrating the classic SIR model to data generated by a heterogeneous model can lead to forecasts that are biased in several ways and to understatement of the forecast uncertainty. Among the biases are that we may underestimate how quickly herd immunity might be reached, underestimate differences across regions, and have biased estimates of the impact of endogenous and policy-driven social distancing.

Is deforestation spreading COVID-19 to the indigenous peoples?

This paper examines deforestation’s effect on the COVID-19 transmission to indigenous peoples and its transmission mechanisms. To that end, I analyze the Brazilian case and use new datasets that cover all the country’s municipalities daily. Relying on a fixed-effects model, I find that deforestation is a powerful and consistent variable to explain the transmission of COVID-19 to indigenous populations. The estimates show that one unit increase in deforestation per 100 Km² is associated, on average, with the confirmation of 2.4 to 5.5 new daily cases of COVID-19 in indigenous people 14 days after the deforestation warnings. One Km² deforested today results in 9.5% more new COVID-19 cases in two weeks. In accumulated terms, deforestation explains at least 22% of all COVID-19 cases confirmed in indigenous people until 31 August 2020. The evidence suggests that the main mechanisms through which deforestation intensifies human contact between indigenous and infected people are illegal mining and conflicts.

The Triple Effect of Covid-19 on Chinese Exports: First Evidence of the Export Supply, Import Demand & GVC Contagion Effects

Felix L. Friedt and Kaichong Zhang

In this study, we estimate the overall impact of the novel Coronavirus pandemic on Chinese exports and differentiate the hypothesized `triple pandemic effect’ across its three components: 1) the domestic supply shock; 2) the international demand shock; and 3) the effects of Global Value Chain (GVC) contagion. We find that Chinese exports are very sensitive to the severity of the global Coronavirus outbreaks. Average export elasticity estimates with respect to new Chinese and foreign destination country infections range from -2.5 to -4.6. Against a Covid-19-free counterfactual, our estimates predict that the pandemic has reduced Chinese exports by as much as 40% to 45% during the first half of 2020, but that these losses have peaked and are expected to partially recover by the end of the year. Moreover, we find that all three shocks contribute to the pandemic-induced reduction in Chinese exports, but that GVC contagion exerts the largest and most persistent influence explaining these losses. Among the three shocks, the impact of GVC contagion explains around 75% of the total reduction in Chinese exports, while the domestic supply shock in China accounts for around 10% to 15% and the international demand shock only explains around 5% to 10%. As a result of these varying transmission channels, the pandemic effects appear to be very distinct from those explaining the Great Trade Collapse in 2008-09.

Issue : 52

Uncertainty and Lockdown in COVID-19: an Incomplete Information SIR Model

The Role of Asymptomatic Cases

This paper introduces an information structure into the standard SIR model to investigate the role of targeted lockdown policies in the presence of incomplete information. By allowing for asymptomatic infected agents and symptomatic susceptible agents, such that the presence of a symptom is an imperfect indicator of an agent’s health state, we solve for the optimal lockdown policies on symptomatic and non-symptomatic agents. The model is then calibrated to the UK, where we find mitigation measures have reduced the peak of the infection rate from 23.9% to 3.47%, and decreased the number of fatalities by 39.1% if a vaccine is discovered within 18 months. If a uniform lockdown policy is pursued, the costs to the economy are large with GDP falling by 18.3% in the first year. However, through conditioning lockdown policies on the presence of symptoms, these costs may be substantially reduced, with no increase in the number of fatalities.

“Heard” immunity: Messages emphasizing the safety of others increase intended uptake of a COVID-19 vaccine in some groups

A survey experiment exposes treatment groups to four messages supporting future vaccination against COVID-19. These treatments emphasize either the risks of the virus or the safety of vaccination, to the respondent personally or to others. For a nationally representative sample, self-reported intent to vaccinate is not significantly different from the control for any message. However, there is a substantial divergence between white non-Hispanic respondents, whose response to all four treatments is close to zero, and non-white or Hispanic respondents, whose intention to vaccinate is over 50% higher in response to a message emphasizing pro-sociality and the safety of others.

The Geography of Pandemic Containment

Elisa Giannone, Nuno Paixão and Xinle Pang

How does interconnectedness affect the pandemic? What are the optimal within and between states containment policies? We embed a spatial SIR model into a multi-sector quantitative trade model. We calibrate it to US states and find that interconnectedness increases the death toll by 73,200 lives. A local within-state containment policy minimizes welfare losses relative to a national policy or to one that reduces mobility between states. The optimal policy combines local within- and between-state restrictions and saves 132,200 lives. It includes a peak reduction in mobility of 33% saving approximately 40,000 lives. Different timing of policies across states is key to minimize losses. States like Arizona might have imposed too early internal lockdowns while too late travel restrictions.

Pandemics and Income Inequality: A Historical Review

Inequality: A Historical View

This paper examines the effects of pandemics on income inequality, specifically those pandemics that claimed more than 100,000 lives. Given that pandemics are events that rarely occur, we have use data spanning over the last 100 years (1915-2017) and relating to four pandemics. The study includes four countries that had income inequality data covering that period. Using panel data methods – Fixed Effects and Augmented Mean Group estimators – we found a significant effect of these pandemics on declining income inequality. The study argues that based on the characteristics of the COVID-19 pandemic, namely that fatalities are highly concentrated in older age groups, we can neither expect a labor scarcity nor a sharp decline in productivity; however, we could expect a reduction in consumption, the possibility of savings, high unemployment rates, and high public debt ratios. The ultimate effects of COVID-19 on inequality remain unclear so far, as some of its inherent characteristics push for an increase in inequality. In contrast, others push toward a narrowing of the income gap.

Worker Productivity during Lockdown and Working from Home: Evidence from Self-Reports

Ben Etheridge, Li Tang and Yikai Wang

We examine self-reported productivity of home workers during lockdown using survey data from the UK. On average, workers report being as productive as at the beginning of the year, before the pandemic. However, this average masks substantial differences across sectors, by working-from-home intensities, and by worker characteristics. Workers in industries and occupations characterized as being suitable for home work according to objective measures report higher productivity on average. Workers who have increased their intensity of working from home substantially report productivity increases, while those who previously always worked from home report productivity declines. Notable groups suffering the worst average declines in productivity include women and those in low-paying jobs. Declines in productivity are strongly associated with declines in mental well-being. Using stated reasons for productivity declines, we provide evidence of a causal effect from productivity to well-being.

The Heterogeneous Effects of COVID-19 on Labor Market Flows: Evidence from Administrative Data

Alessandra Casarico and Salvatore Lattanzio

We investigate the short term labor market response to the pandemic in Italy and provide a first evaluation of the policies put in place to shield workers from the disruption of economic activity. Using administrative data on a sample of contracts active in the first quarter of 2020, we show that, before the pandemic, workers employed in non-essential activities were in majority men, younger than 35 years old, located in the North of the country and with lower levels of education. When looking at the change in hirings and separations and decomposing it by age, gender, region, type of contract (open-ended or temporary), education level, and sector (essential vs non-essential activities), we find that from the nineth week of the year, there was a pronounced drop in hirings and terminations. On the contrary, firings and quits spiked right after the nineth week, and then dropped significantly, reflecting the effects of the firing freeze and the easing of access to STW compensation schemes. We further explore separations by examining which factors predict the probability of job loss. We find that those workers that were already suffering the consequences of the previous recession (young, temporary, low-skill workers) are those at higher risk of losing their job because of COVID-19. Gender, instead, is a non-significant predictor of job loss in the aggregate.

Issue : 51

Racial Disparities in Frontline Workers and Housing Crowding during COVID-19: Evidence from Geolocation Data

Milena Almagro, Joshua Coven, Arpit Gupta and Angelo Orane-Hutchinson

We document that racial disparities in COVID-19 in New York City stem from patterns of commuting and housing crowding. During the initial wave of the pandemic, out-of-home activity related to commuting is strongly associated with COVID-19 cases at the ZIP Code level and hospitalization at an individual level. After layoffs of essential workers decreased commuting, case growth continued through household crowding. A larger share of individuals in crowded housing or commuting to essential work are Black, Hispanic, and lower-income. As a result, structural inequalities, rather than population density, help determine the cross-section of COVID-19 risk exposure in urban areas.

A Farewell to R: Time Series Models for Tracking and Forecasting Epidemics

Andrew Harvey and Paul Kattuman

The time-dependent reproduction number, Rt, is a key metric used by epidemiologists to assess the current state of an outbreak of an infectious disease. This quantity is usually estimated using time series observations on new cases, or deaths, combining this information with the distribution of the serial interval of transmissions. For a new epidemic, such as COVID-19, the available information on the serial interval is limited. Bayesian methods are often used to combine this limited information with the new cases, with the new cases usually being smoothed by a simple, but to some extent arbitrary, moving average. This paper describes a new class of time series models for tracking and forecasting new cases. The viability of these models and their ability to deal with spikes and second waves is illustrated with data from Germany and Florida. As a by-product, estimates of Rt, together with their standard deviations, can be obtained from the growth rate of new cases. Very few assumptions are needed and those that are made can be checked. This leads us to the conclusion that tracking an epidemic by trying to estimate Rt may be neither necessary nor desirable.

Crowding Out Bank Loans: Liquidity Driven Bond Issuance

Liquidity: Bonds Beat Banks

Olivier Darmouni and Kerry Y. Siani

According to conventional wisdom, banks play a special role in providing liquidity in bad times, while capital markets are used to fund investment in good times. Using micro-data on corporate balance sheets following the COVID-19 shock, we provide evidence that instead, the corporate bond market is central to firms’ access to liquidity, crowding out bank loans even when the banking sector is healthy. We first show that, contrary to good times, bond issuance is used to increase holdings of liquid assets rather than for real investment. Second, most issuers, including many riskier “high-yield” firms, prefer issuing bonds to borrowing from their bank. Over 40% of bond issuers leave their credit line untouched in 2020Q1. Moreover, a large share of bond issuance is used to repay existing bank loans. This liquidity-driven bond issuance questions the comparative advantage of banks in liquidity provision, and suggests that the V-shaped recovery of bond markets, propelled by the Federal Reserve, is unlikely to lead to a V-shaped recovery in real activity.

Job Loss and Behavioral Change: The Unprecedented Effects of the India Lockdown in Delhi

Kenneth Lee, Harshil Sahai, Patrick Baylis and Michael Greenstone

On March 24, 2020, India’s Prime Minister announced the world’s largest COVID-19 lockdown, bringing to a near-halt the economic and social lives of more than one billion Indian residents. This paper quantifies the economic impacts and behavioral changes induced by this unprecedented policy using two unique data sources: Facebook mobility data and a representative sample of previously surveyed low income Delhi households. Compliance with the lockdown was widespread: intra-city movement declined by 80% following the announcement. The economic consequences have been accordingly severe, with income and days worked falling by 86 and 72% respectively. Nevertheless, observance of public health directives was high: mask usage rose by 73 percentage points and handwashing became nearly universal, while time spent outdoors and smoking both declined. We also show how government-provided social assistance may have averted more dire predictions of widespread famine, resource scarcity, access to medical care, and security. But the declines in mental health and the near-exhaustion of personal savings, amidst a rising infection rate, indicate an important and evolving role for policy-makers as the crisis continues.

Coping During COVID-19: Family Businesses and Social Assistance in Nigeria

Family Business in Nigeria

Elvis Korku Avenyo and Gideon Ndubuisi

The COVID-19 pandemic and the consequent Government-imposed restrictions have altered the way of life around the globe. Using the newly “Nigeria Baseline COVID-19 National Longitudinal Phone Survey 2020”, this paper contributes to the nascent literature on the Economics of COVID-19 by examining the impact of changes in income and social assistance due to the pandemic on the coping strategies of family business owners. We find that family business owners who experienced a reduction in income and those that received social assistance due to the pandemic are likely to increase their coping level. We discuss the policy implications of these findings.

Issue : 50

Editor’s foreword: Issue 50: Where do we stand?

Corona politics: The cost of mismanaging pandemics

Helios Herrera, Maximilian Konradt, Guillermo Ordoñez and Christoph Trebesch

The Covid-19 pandemic is a major test for governments around the world. We study the political consequences of (mis-)managing the Covid crisis by constructing a high-frequency dataset of government approval for 35 countries. In the first weeks after the outbreak, approval rates for incumbents increase strongly, consistent with a global “rally around the flag” effect. Approval, however, drops again in countries where Covid cases continue to grow. This is especially true for governments that do not implement stringent policies to control the number of infections. Overall, the evidence suggests that loose pandemic policies are politically costly. Governments that placed more weight on health rather than short-term economic outcomes obtained higher approval.

Covid pandemic in the market: infected, immune and cured bonds

By focusing on the cost conditions at issuance, I find that not only the Covid-19 pandemic effects were different across bonds and firms at different stages, but also that the market composition was significantly affected, collapsing on investment-grade bonds, a segment in which the share of bonds eligible to the ECB corporate programmes strikingly increased from 15% to 40%. At the same time the high-yield segment shrunk to almost disappear at 4%. In addition to a market segmentation along the bond grade and the eligibility to the ECB programmes, another source of risk detected in the pricing mechanism is the weak resilience to pandemic: the premium requested is around 30 basis points and started to be priced only after the early containment actions taken by the national authorities. On the contrary, I do not find evidence supporting an increased risk for corporations headquartered in countries with a reduced fiscal space, nor the existence of a premium in favour of green bonds, which should be the backbone of a possible “green recovery”.

The income gradient in mortality during the Covid-19 crisis: Evidence from Belgium

André Decoster, Thomas Minten and Johannes Spinnewijn

We use population-wide data from linked administrative registers to study the distributional pattern of mortality before and during the Covid-19 pandemic in Belgium. Excess mortality is only found among those aged 65 and over. For this group, we find a significant negative income gradient in excess mortality, with excess deaths in the bottom income decile more than twice as high as in the top income decile for both men and women. However, given the high inequality in mortality in normal times, the income gradient in all-cause mortality is only marginally steeper during the peak of the health crisis when expressed in relative terms. Leveraging our individual-level data, we gauge the robustness of our results for other socioeconomic factors and find that conclusions about the income gradient in excess mortality based on aggregate data can be misguided.

Integrating health and economic parameters to optimize COVID-19 mitigation strategies

Integrating Health and Economics

Alik Sokolov, Yichao Chen, Jonathan Mostovoy, Andrew Roberts, Luis Seco and V. Kumar Murty

Managing the COVID-19 effectively requires a series of mitigating steps that change over time as function of external conditions and previous mitigating steps. Modeling this effectively requires a multi-disciplinary integrative approach that combines epidemiological, economic and social considerations within a unified modeling environment. Our research focuses on incorporating elements from classical utility theory in combination with control theory and machine learning to better model the dynamics of the non-linear trade-offs inherent in managing the pandemic. We postulate a theoretical formulation on how these tradeoffs can be modeled, and demonstrate empirical results to elucidate the limiting factors in finding efficient solutions.

US Housing Market during COVID-19: Aggregate and Distributional Evidence

Using zip code-level data and nonparametric estimation, I present eight stylized facts on the US housing market in the COVID-19 era. Some aggregate results are: (1) growth rate of median housing price during the four months (April-August 2020) since the Federal Reserve’s unprecedented monetary easing has accelerated faster than any four-month period in the lead-up to the 2007-09 global financial crisis; (2) the increase in housing demand in response to lower mortgage interest rates displays a structural break since March 2020 (housing demand has increased by much more than before). These results indicate either the existence of “fear of missing out” or COVID-induced fundamental changes in household behavior. In terms of distributional evidence, I find that the increase of housing demand seems more pronounced among the two ends of the income distribution, possibly reflecting relaxed liquidity constraints at the lower end and speculative demand at the higher end. I also find that the developments in housing price, demand, and supply since April 2020 are similar across urban, suburban, and rural areas. The paper highlights the potential unintended consequences of COVID-fighting policies and calls for further studies of the driving forces of the empirical findings.

Too afraid to vote? The effects of COVID-19 on voting behaviour

Tania Fernández-Navia, Eduardo Polo-Muro and David Tercero-Lucas

This paper studies the causal effect of local exposure to the COVID-19 on voting behavior and electoral outcomes using evidence from the regional elections held in Spain on July 12, 2020. Exploiting the variation in exposure to the COVID-19 and using a difference-in-differences identification strategy, we show that turnover was between and 2.2 and 3.3 percentage points lower in municipalities that experienced positive cases of COVID-19. However, we do not find evidence of changes in the vote shares to the incumbent parties at the regional or national levels. We further discuss fear as the potential mechanism driving our results.

Empirical Evidence of the Effects of COVID-19 on Voter Turnout

Miguel Vázquez-Carrero, Joaquín Artés, Carmen García, Juan Luis Jiménez

This paper studies the effects of COVID-19 on voting turnout using as a case study an election that took place right after the peak of the first wave of the pandemic, the Basque Country regional elections. With the spread of COVID-19 there is a fear that in-person voting will spread the virus, which adds an additional burden to voters that is expected to decrease turnout. We confirm this hypothesis using a difference-in-difference model. We find that COVID-19 caused turnout to decrease by approximately 4.7% in municipalities affected by the virus compared to those that at the time of the election had not been affected by it. This effect on turnout is higher for municipalities affected also by deaths from coronavirus than when affected only by infected cases.

Issue : 49

Globalization and pandemics

Pol Antràs, Stephen J. Redding and Esteban Rossi-Hansberg

We develop a model of human interaction to analyze the relationship between globalization and pandemics. Our framework provides joint microfoundations for the gravity equation for international trade and the Susceptible-Infected-Recovered (SIR) model of disease dynamics. We show that there are cross-country epidemiological externalities, such that whether a global pandemic breaks out depends critically on the disease environment in the country with the highest rates of domestic infection. A deepening of global integration can either increase or decrease the range of parameters for which a pandemic occurs, and can generate multiple waves of infection when a single wave would otherwise occur in the closed economy. If agents do not internalize the threat of infection, larger deaths in a more unhealthy country raise its relative wage, thus generating a form of general equilibrium social distancing. Once agents internalize the threat of infection, the more unhealthy country typically experiences a reduction in its relative wage through individual-level social distancing. Incorporating these individual-level responses is central to generating large reductions in the ratio of trade to output and implies that the pandemic has substantial effects on aggregate welfare, through both deaths and reduced gains from trade.

The safest time to fly: Pandemic response in the era of Fox News

Impact of Fox News on Mobility

Maxim Ananyev, Michael Poyker and Yuan Tian

We document a causal effect of conservative Fox News Channel in the United States on physical distancing during COVID-19 pandemic. We measure county-level mobility covering all U.S. states and District of Columbia produced by GPS pings to 15-17 million smartphones and zip-code-level mobility using Facebook location data. Then, using the historical position of Fox News Channel in the cable lineup as the source of exogenous variation, we show that increased exposure to Fox News led to a smaller reduction in distance traveled and smaller increase in the probability to stay home after the national emergency declaration in the United States. Our results show that slanted media can have a harmful effect on containment efforts during a pandemic by affecting people’s behaviour.

Productivity of working from home during the COVID-19 pandemic: Evidence from an employee survey

Productivity of Working from Home

Using data from an original survey conducted in June 2020, this study examines the prevalence, frequency, and productivity of working from home (WFH) practices during the COVID-19 pandemic in Japan. The results reveal that the percentage of employees who practiced WFH was approximately 32%. Labor input attributed to WFH arrangements accounted for approximately 19% of total working hours. Highly educated, high-wage, white-collar employees who work in large firms in metropolitan areas tended to practice WFH. The mean WFH productivity relative to working at the usual workplace was about 60% to 70%, and it was lower for employees who started WFH practices only after the spread of the COVID-19 pandemic. Meanwhile, highly educated, and high-wage employees, as well as long-distance commuters, tended to exhibit a relatively small reduction in WFH productivity.

The Role of Global Connectedness and Market Power in Crises: Firm-level Evidence from the COVID-19 Pandemic

Global Connectedness and Market Power

Jay Hyun, Daisoon Kim and Seung-Ryong Shin

How do firms’ global connectedness and market power affect their performance and resilience during crises? While global production and export networks expose firms to foreign shocks, they potentially make firms less susceptible to domestic shocks through diversification of suppliers and markets. Also, higher market power could provide buffers by allowing bigger margins of adjustments. Using weekly global stock market data, we show that firms with higher global connectedness (via supply chains and exports) and market power (measured by markups) are more resilient to domestic pandemic shocks. These findings contribute to a better understanding of firms’ reaction and reallocation during crises.

Unmasking mutual fund derivative use during the COVID-19 crisis

Ron Kaniel and Pingle Wang

Utilizing newly available data from the SEC on derivative performance and detailed derivative holdings, this paper studies how derivatives impact mutual fund performance, with an emphasis on the COVID-19 pandemic period. In contrast to previous research concluding derivatives are used for hedging, we find that most active equity funds use derivatives to amplify market exposure. Despite the seemingly small weight, derivatives have a significant impact on funds’ leverage and contribute largely to fund returns. In response to the initial outbreak of COVID-19, funds trade more heavily on short derivative positions. This behavior is more prevalent among managers residing in states with early state-level Stay-at home orders, where the risk of recession is likely more salient. Funds that used derivatives for hedging purposes before the crisis significantly outperform nonusers by over 9% during the initial outbreak, as their distribution of derivative returns shifts to the right. By the end of June, they still outperform by 1.6%. On the contrary, funds that used derivatives to amplify market exposure underperform, and their distribution of derivative returns shifts to the left. While they do shift strategies, they are slow to open short positions and remain mostly amplifying funds. Consequently, by the time they shift, the market has already started to recover, so that they lose on their short positions. The shifts in derivative return distributions during the COVID-19 crisis are mostly driven by swap contracts, which have been ignored by prior studies.

Assessing the ethnic employment gap during the early stages of COVID-19

The outbreak of COVID-19 led to a spike in the unemployment rate and a decrease in the number of job openings. It is unknown whether this shock in the labor market affects different groups of job seekers equally. With the help of a correspondence study I describe the relationship between labor market conditions and ethnic labor inequality. The results provide evidence of the changes in the ethnic employment gap during the early stage of the COVID-19 outbreak. Moreover, these changes are accompanied by fluctuations in the labor market competition.

Issue : 48

Economic epidemiology in the wake of Covid-19

Economic Epidemiology: A Review

Infectious diseases, ideas, new products, and other “infectants” spread in epidemic fashion through social contact. The Covid-19 pandemic, the proliferation of “fake news,” and the rise of antibiotic resistance have thrust economic epidemiology into the forefront of public-policy debate and re-invigorated the field. Focusing for concreteness on disease-causing pathogens, this paper provides a taxonomy of economic-epidemic models, emphasizing both the biology / immunology of the disease and the economics of the social context. An economic epidemic is one whose diffusion through the agent population is generated by agents’ endogenous behavior. I highlight properties of the Nash-equilibrium epidemic trajectory and discuss ways in which public-health authorities can change the game for the better, (i) by imposing restrictions on agent activity to reduce the harm done during a viral outbreak and (ii) by enabling diagnostic-informed interventions to slow or even reverse the rise of antibiotic resistance.

Individualism During Crises

Bo Bian, Jingjing Li, Ting Xu and Natasha Z. Foutz

Individualism has long been linked to economic growth. Using the COVID-19 pandemic, we show that such a culture can hamper the economy’s response to crises, a period with heightened coordination frictions. Exploiting variation in US counties’ frontier experience, we show that more individualist counties engage less in social distancing and charitable transfers, two important collective actions during the pandemic. The effect of individualism is stronger where social distancing has higher externality and holds at the individual level when we exploit migrants for identification. Our results suggest that individualism can amplify economic downturns by exacerbating collective action problems.

Entrepreneur Debt Aversion and Financing Decisions: Evidence from COVID-19 Support Programs

Entrepreneur Debt Aversion

Mikael Paaso , Vesa Pursiainen, and Sami Torstila

We find that an entrepreneur’s negative personal attitude towards debt – debt aversion – affects the financing decisions of the businesses they run. We conduct a large-scale survey of entrepreneurs and link it to their firms’ registry-based financial information. After controlling for a range of observable traits, firms run by highly debt averse entrepreneurs are about nine percentage points less likely to use debt, compared to baseline debt usage of just under 50%. The same entrepreneurs are also almost 25% less likely to take up government-guaranteed debt during the COVID-19 crisis. We also conduct a set of experiments to strengthen a causal interpretation. The experiments randomize the framing of otherwise identical, hypothetical COVID-19 support policies as debt or grants. Framing policies as debt significantly decreases interest.

Covid-19 Supply Chain Disruptions

Matthias Meier and Eugenio Pinto

We study the effects of international supply chain disruptions on real economic activity and prices during the Covid-19 pandemic. We show that US sectors with a large exposure to intermediate goods imports from China contracted significantly and robustly more than other sectors. In particular, highly exposed sectors suffered larger declines in production, employment, imports, and exports. Moreover, input and output prices moved up relative to other sectors, suggesting that real activity declines in sectors with a high China exposure were not particularly driven by a slump in demand. Quantitatively, differences in China exposures accounts for about 9% of the cross-sectoral variance of industrial production growth during March and April 2020. The estimated effects are short-lived effects and dissipate by July.

Epidemics, Poverty, and Social Cohesion: Lessons from the Past and Possible Scenarios for COVID-19

Pandemics, Poverty, and Social Cohesion

Remi Jedwab, Amjad M. Khan, Richard Damania, Jason Russ & Esha D. Zaveri

Since COVID-19 broke out, there has been renewed interest in understanding the economic and social dynamics of historical and more recent epidemics and pandemics, from the plagues of Antiquity to modern-day outbreaks like Ebola. These events can have significant impacts on the interplay between poverty and social cohesion, i.e. how different groups in society interact and cooperate to survive and prosper. To that effect, this survey paper provides an overview of how social responses to past epidemics and pandemics were determined by the epidemiological and non-epidemiological characteristics of these outbreaks, with a particular focus on the scapegoating and persecution of minority groups, including migrants. We discuss existing theories as well as historical and quantitative studies, and highlight the cases where epidemics and pandemics may lead to milder or more severe forms of scapegoating. Finally, we conclude with a summary of priorities for future research on epidemics, pandemics and social cohesion and discuss the possible effects and policy implications of COVID-19.

Forecasting the Impact of the COVID-19 Shock on the Mexican Economy

We forecast the short-term evolution of the Mexican economy after the COVID-19 shock. We take into account the fact that there is no similar shock observed in contemporaneous data. We combine an econometric procedure with a basic SIR model of the pandemic. To make the forecasts we first calculate an estimate of the shocks that hit the economy starting in March 2020. We then produce several forecasts in which we make variations on two dimensions: introducing a path for the pandemic or not, and if we do, we consider three scenarios. The introduction of paths of the pandemic in which new cases fall has a positive effect on the economy. The main results are the following. First, the shocks that hit the economy starting in March 2020 have the potential to produce a slow recovery of economic activity. In a forecast not conditioned on any path for the pandemic, the annual growth rate of the economy recovers positive values in the second quarter of 2021. Second, in our baseline scenario that includes a pandemic path based on the SIR model, the recovery is faster, having positive growth rates in the first quarter of 2021. To maximize the benefits of a fall in new cases, policy makers should reduce persistent effects of the initial shock that hit the economy. Otherwise economic activity would tilt towards a longer recession.

Risk Communication during COVID-19: A Descriptive Study on Familiarity with, Adherence to and Trust in the WHO Preventive Measures

Nirosha Elsem Varghese, Iryna Sabat, Sebastian Neuman‑Böhme, Jonas Schreyögg, Tom Stargardt, Aleksandra Torbica, Job van Exel, Pedro Pita Barros and Werner Brouwer

Background: Risk communication is a key component of public health interventions during an outbreak. As the coronavirus pandemic unfolded in late 2019, the World Health Organization (WHO) was at the forefront in the development of risk communication strategies. The WHO introduced a range of activities with the purpose of enabling the public to avail verified and timely information on COVID-19 prevention behaviors. Given the various WHO activities to protect the public health during COVID-19, it is important to investigate the extent of familiarity and uptake of the WHO recommendations among the public so far during the pandemic.
Methods: To do this, we conducted a large-scale Pan-European survey covering around 7500 individuals that are representative of populations from seven European countries, collected online during April 2-April 15, 2020. We use descriptive statistics including proportions and correlations and graphical representations such as bar charts to analyze and display the data.
Results: Our findings suggest that information from the WHO in the context of COVID-19 is well trusted and acted upon by the public. Overall familiarity and adherence were quite high in most countries. Adherence was higher for social distancing recommendations compared to hygiene measures. Familiarity and adherence were higher among older, female, and highly educated respondents. However, country level heterogeneities were observed in the level of trust in information from the WHO, with countries severely affected by the pandemic reporting lower levels of trust.
Conclusion: Our findings call for efforts from health authorities to get regular feedback from the public on their familiarity and compliance with recommendations for preventive measures at all stages of the pandemic, to further develop and adapt risk communication as the pandemic evolves.

From villains to heroes? The economics profession and its response to the pandemic

Economists: From Villains to Heroes?

The unprecedented crisis caused by the coronavirus pandemic has prompted a spontaneous collective effort by the economics profession to contribute both to the immediate policy response to the shock, and also to the debate about the character of the subsequent recovery. This paper describes the current contributions of economists, largely from a UK perspective, and compares – and contrasts – this episode with the activities of economists during WW2. In both cases economists have collectively responded to crisis demands with a strong sense of public service. There are also key differences, including the presence of a formal economics profession in government now in contrast to the earlier period, and also prior critiques of economics as a discipline since at least the 2008 financial crisis. The second world war led to significant innovations in economics and its professional status; the scale of the current crisis may in turn lead to an evolution in the professional character of the discipline.

Issue : 47

Test sensitivity for infection versus infectiousness of SARS–CoV-2

Testing Sensitivity for Infection Versus Infectiousness

The most commonly used test for the presence of SARS-CoV-2 is a PCR test that is able to detect very low viral loads and inform on treatment decisions. Medical research has confirmed that many individuals might be infected with SARS-CoV-2 but not infectious. Knowing whether an individual is infectious is the critical piece of information for a decision to isolate an individual or not. This paper examines the value of different tests from an information-theoretic approach and shows that applying treatment-based approval standards for tests for infection will lower the value of those tests and likely causes decisions based on them to have too many false positives (i.e., individuals isolated who are not infectious). The conclusion is that test scoring be tailored to the decision being made.

Asset Pricing during Pandemic Lockdown

Asset Pricing During Lockdown

Yuta Saito and Jun Sakamoto

This paper examines the implications of lockdown policies for asset prices using a susceptible-infected-recovered model with microeconomic foundations of individual economic behaviours. In our model, lockdown policies reduce (i) labour income by decreasing working hours and (ii) precautionary savings by decreasing susceptible agents’ probability of getting infected in the future. We qualitatively show that strengthening lockdown measures negatively impacts asset prices at the time of implementation. Our empirical analysis using data from advanced countries supports this finding. Depending on parameter values, our numerical analysis displays a V-shaped recovery of asset prices and an L-shaped recession of consumption. The rapid recovery of asset prices occurs only if the lockdown policies are insufficiently stringent to reduce the number of new periodic cases. This finding implies the possibility that lenient lockdowns have contributed to rapid stock market recovery at the beginning of the COVID-19 pandemic.

Pandemic Shocks and Household Spending

David Finck and Peter Tillmann

We study the response of daily household spending to the unexpected component of the COVID-19 pandemic, which we label as pandemic shock. Based on daily forecasts of the number of fatalities, we construct the surprise component as the difference between the actual and the expected number of deaths. We allow for state-dependent effects of the shock depending on the position on the curve of infections. Spending falls after the shock and is particularly sensitive to the shock when the number of new infections is strongly increasing. If the number of infections grows moderately, the drop in spending is smaller. We also estimate the effect of the shock across income quartiles. In each state, low-income households exhibit a significantly larger drop in consumption than high-income households. Thus, consumption inequality increase after a pandemic shock. Our results hold for the US economy and the key US states. The findings remain unchanged if we choose alternative state-variables to separate regimes.

The Consequences of the Covid-19 Job Losses: Who Will Suffer Most and by How Much?

Job Losses: Who Suffers Most?

Andreas Gulyas and Krzysztof Pytka

Using the universe of Austrian unemployment insurance records until May 2020, we document that the composition of UI claimants during the Covid-19 outbreak is substantially different compared to past times. Using a machine-learning algorithm from Gulyas and Pytka (2020), we identify individual earnings losses conditional on worker and job characteristics.
Covid-19-related job terminations are associated with lower losses in earnings and wages compared to the Great Recession, but similar employment losses. We further derive an accurate but simple policy rule targeting individuals vulnerable to long-term wage losses.

Demand for Health Insurance in the Time of COVID-19: Evidence from the Special Enrollment Period in the Washington State ACA Marketplace

I study the demand for health insurance during the COVID-19 pandemic using Special Enrollment Period (SEP) individual-level enrollment data from the Washington State Affordable Care Act Marketplace. I document that most individuals enrolling in plans during the pandemic are those who lost minimum essential coverage, followed by uninsured individuals making use of Washington’s limited-time SEP for uninsured individuals. I estimate a demand model and find that low-income individuals and young individuals are more premium sensitive. I find that 20.4 percent of the individuals in my analysis sample did not pay their initial premium. Individuals losing minimum essential coverage are less likely to pay their initial premium than individuals using the SEP for other qualifying events. Lower income individuals are less likely to pay the initial premium than higher income individuals. My results suggest three reasons for considering more generous premium subsidies during the remainder of the pandemic: (1) individuals losing minimum essential coverage are already using the exchange to replace lost coverage, (2) consumers are premium sensitive, and (3) there are meaningful differences across demographic groups in the probability of paying the first premium, which is necessary for coverage to take effect.

The Distributional Effects of COVID-19 and Mitigation Policies

Mitigating Distribution Effects

This paper develops a quantitative life cycle model in which economic decisions impact the spread of the COVID-19 and, conversely, the virus affects economic decisions. The calibrated model is used to measure the welfare costs of the pandemic across the age, income, and wealth distribution and to study the effectiveness of various mitigation policies. In the absence of mitigation, young workers engage in too much economic activity relative to the social optimum, leading to higher rates of infection and death in the aggregate. The paper considers a subsidy-and-tax policy that imposes a tax on consumption and subsidizes reduced work compared to a lockdown policy that caps work hours. Both policies are welfare improving and lead to less infections and deaths. Notably, almost all agents favor the subsidy-and-tax policy, suggesting that there need not be a tradeoff between saving lives and economic welfare.

Mass outdoor events and the spread of an airborne virus: English football and Covid-19

English Football and Virus Spreading

Matthew Olczak, J. James Reade and Matthew Yeo

Mass attendance events are a mainstay of economic and social activity. Such events have public health consequences, facilitating the spreading of disease, with attendant economic consequences. There is uncertainty over the impact such events can have on the spread of disease. We investigate the impact of regular mass outdoor meetings on the spread of a virus by considering football matches in England in February and March 2020 and the spread of Covid-19 into April 2020. There were 340 league and cup football matches with a combined attendance of 1.625m people in March, taking place over 188 of 313 local areas. We look at the occurrence and attendance at matches, and how full the stadia were, and how these variables are related to the spread of Covid-19 in April. We evaluate Covid-19 cases, deaths and excess deaths, all as rates of 100,000 people in an area. We find evidence that mass outdoor events were consistent with more cases and deaths, even after controlling for measurable characteristics of local areas. We find that a football match is consistent with around six additional Covid-19 cases per 100,000 people, two additional Covid-19 deaths per 100,000 people, and three additional excess deaths per 100,000 people. This effect is slightly stronger for the areas of away teams in March, and slightly weaker for matches in February. These results suggest caution in returning to unrestricted spectator attendance at matches. We caveat our analysis though by noting that stadium access and egress routes can be adapted such that some of the opportunities for the spread of an airborne virus could be mitigated. We recommend that the relevant authorities conduct pilot events before determining to what extent fans can return to mass outdoor events.

Issue : 46

Japan’s Voluntary Lockdown

Tsutomu Watanabe and Tomoyoshi Yabu

Japan’s government has taken a number of measures, including declaring a state of emergency, to combat the spread COVID-19. We examine the mechanisms through which the government’s policies have led to changes in people’s behavior. Using smartphone location data, we construct a daily prefecture-level stay-at-home measure to identify the following two effects: (1) the effect that citizens refrained from going out in line with the government’s request, and (2) the effect that government announcements reinforced awareness with regard to the seriousness of the pandemic and people voluntarily refrained from going out. Our main findings are as follows. First, the declaration of the state of emergency reduced the number of people leaving their homes by 8.6% through the first channel, which is of the same order of magnitude as the estimate by Goolsbee and Syverson (2020) for lockdowns in the United States. Second, a 1% increase in new infections in a prefecture reduces people’s outings in that prefecture by 0.026%. Third, the government’s requests are responsible for about one quarter of the decrease in outings in Tokyo, while the remaining three quarters are the result of information updating on the part of citizens through government announcements and the daily release of the number of infections. Our results suggest that what is necessary to contain the spread of COVID-19 is not strong, legally binding measures but the provision of appropriate information that encourages people to change their behavior.

The Impact of COVID-19 Lockdowns and Expanded Social Assistance on Inequality, Poverty and Mobility in Argentina, Brazil, Colombia and Mexico

Social Assistance in Argentina, Brazil and Colombia

Nora Lustig, Valentina Martinez Pabon, Federico Sanz and Stephen D. Younger

We use microsimulation to estimate the distributional consequences of covid-19-induced lockdown policies in Argentina, Brazil, Colombia and Mexico. Our estimates of the poverty consequences are worse than many others’ projections because we do not assume that the income losses are proportionally equal across the income distribution. We also simulate the effects of most of the expanded social assistance governments have introduced in response to the crisis. This has a large offsetting effect in Brazil and Argentina, much less in Colombia. In Mexico, there has been no such expansion. Contrary to prior expectations, we find that the worst effects are not on the poorest, but those (roughly) in the middle of the ex ante income distribution. In Brazil we find that poverty among the afrodescendants and indigenous populations increases by more than for whites, but the offsetting effects of expanded social assistance also are larger for the former. In Mexico, the crisis induces significantly less poverty among the indigenous population than it does for the nonindigenous one. In all countries the increase in poverty induced by the lockdown is similar for male- and female-headed households but the offsetting effect of expanded social assistance is greater for female-headed households.

Sharing when stranger equals danger: Ridesharing during Covid-19 pandemic

Marc Ivaldi and Emil Palikot

Using data collected from one of the most popular ridesharing platforms, we illustrate how mobility has changed after the exit from the Covid-19 induced confinement. We measure the impact of the Covid-19 outbreak on the level of mobility and the price of ridesharing. Finally, we show that the pandemic has exacerbated ethnic discrimination. Our results suggest that a decision-maker encouraging the use of ridesharing during the pandemic should account for the impact of the perceived health risks on ridesharing prices and should find ways to ensure fair access.

How Has Labor Demand Been Affected by the COVID-19 Pandemic? Evidence from Job Ads in Mexico

Raymundo M. Campos-Vazquez, Gerardo Esquivel, Raquel Y. Badillo

There is a concern among social scientists and policymakers that the COVID-19 crisis might permanently change the nature of work. We study how labor demand in Mexico has been affected during the pandemic by web scraping job ads from a leading job search website. As in the U.S., the number of vacancies in Mexico declined sharply during the lockdown (38 percent). In April there was a change in the composition of labor demand, and wages dropped across the board. By May, however, the wage distribution and the distribution of job ads by occupation returned to their pre-pandemic levels. Overall, there was a slight decline in specific requirements (gender and age), no change in required experience, and a temporary increase in demand for low-skilled workers. Contrary to expectations, opportunities for telecommuting diminished during the pandemic. Using a simple Oaxaca-Blinder decomposition, we find that the variation in the average advertised wage in April is explained more by a higher proportion of low-wage occupations than by a reduction in the wages paid for particular occupations. In sum, we find no evidence of a significant or permanent change in labor demand during the pandemic in Mexico.

Employment Changes by Employer Size using the Current Employment Statistics Survey microdata during the COVID-19 pandemic

Firm sizes and Employment in Mexico

Michael Dalton, Elizabeth Weber Handwerker, and Mark A. Loewenstein

We use the Current Employment Statistics Survey microdata to calculate employment changes since February 2020 by employer size. We find that for employers with 1-9 employees, the largest component of employment change since February is due to closings in all months (either temporary or permanent). For 10 or more employees by April, the largest component of employment change since February is employment changes within continuing employers, rather than those reporting zero employment or imputed closures from non-respondents in the survey. In percentage terms, the greatest overall employment losses shifted to larger and larger employers each month. By July, the largest cumulative employment losses were for employers with 100-499 employees, with 8% loss in employment since February, while employers with 1-9 employees had a loss of 4.3% in employment since February.

Socially Conscious Investors: Mitigating Stock Market Losses During the COVID-19 Crash

Socially Conscious Investors

Recent years have witnessed a surge in demand from investors who invest with a socially responsible mandate. We study stock returns associated with this practice in the COVID-19 crash and the months before it. Based on data on mutual funds, we find that stocks with greater socially conscious investor ownership experience superior returns, lower returns volatility, and better market valuations during the pandemic. No differences are to be found with respect to gross profitability, operating income, and sales growth as well as expectations about the long-term growth rate of earnings per share. This suggests that socially conscious investors can act as a moderating force by mitigating losses in the stock market in a time of crisis.

Issue : 45

Changing Skill Structure and COVID-1

Elena Mattana, Valerie Smeets and Frederic Warzynski

In this paper, we provide evidence that the early labor market effects of COVID- 19 have been concentrated on subsets of the workforce already negatively hit by the recent wave of structural change in the occupation and skills of workers. We document that the occupation and education composition of furloughed workers in Denmark is concentrated among individuals with low education or vocational training, as well as specific occupational groups that were on the decline before the crisis hit. Our results strengthen the hypothesis that COVID-19 will accelerate the ongoing structural transitions in the economy.

Capital Markets, COVID-19 and Policy Measures

Capital Markets and Policies

Khalid ElFayoumi and Martina Hengge

The COVID-19 pandemic and associated policy responses triggered a historically large wave of capital reallocation between markets, asset classes, and industries. Using high-frequency country-level data, we examine if and how the number of infections, the stringency of the lockdown, and the fiscal and monetary policy response determined the dynamics of portfolio flows, market-implied sovereign risk, and stock prices. We find that these factors played an important role, particularly for emerging markets. Our results indicate that domestic infections had an initial negative impact on flows. Cumulatively, however, the effect was positive and reflected increased demand for financing by affected economies. We also find that both lockdown and fiscal measures supported portfolio flows, driven by an increased supply of funds. Bonds, not equities, were the primary driver of portfolio flows, highlighting a pattern of reallocation to safety. Finally, we show that monetary policy loosening in developed markets led to a cumulative decline in flows, as investors searched for higher yield.

The impact of COVID-19 international travel restrictions on services-trade costs: some illustrative scenarios

Travel Restrictions and Trade in Services

Sebastian Benz, Frederic Gonzales and Annabelle Mourougane

This paper casts some light on the impact of regulatory restrictions on the movement of people across international borders, implemented on health and safety grounds following the COVID-19 outbreak, on services trade costs using some illustrative scenarios where all the countries are assumed to close their borders to passengers, but leave freight trade open. Services trade costs are estimated to increase by an average of 12% of export values across sectors and countries in the medium term in such a hypothetical scenario. The analysis identifies a large variability in the increase in services-trade costs across sectors and across countries, reflecting the stringency of initial regulations and the relative importance of business travel and labour mobility to international services trade.

COVID Social Distancing and the Poor: An Analysis of the Evidence for England.

Social Distancing and the Poor

Parantap Basu, Clive Bell and T. Huw Edwards

Social distancing is a matter of individuals’ choices as well as of regulation, and regulation arguably responds to those choices. We analyse weekly panel data on such behaviour for English Upper Tier Local Authorities (UTLAs) from March to July 2020, paying attention to the influence of poverty, as measured by free school meals provision. Panel regressions suggest that, although more stringent regulation and slightly lagged local cases of infection increase social distancing, both effects are weaker in UTLAs with higher levels of poverty. Thus motivated, we develop a two-class (rich/poor) model, in which a Nash non-cooperative equilibrium arises from individual choices in a regulatory regime with penalties for non-compliance. The model yields results in keeping with the empirical findings, indicating the desirability of generous measures to furlough workers in low-paid jobs as a complement to the stringency of general regulation.

Emergency loans and consumption – evidence from COVID-19 in Iran

Emergency Loans and Consumption in Iran

Mohammad Hoseini and Thorsten Beck

We use monthly and daily transaction data from Iran, disaggregated by provinces, good and service categories, and retail store segments to gauge the impact of government emergency loans on consumption patterns. We find that emergency loans are positively related with higher consumption of non-durable and semi-durable goods, suggesting that the emergency loans were predominantly used for their intended purpose. The effects were strongest in the first few days and then dissipated over time. We find effects only for in-store but not online transactions and in poorer rather than richer provinces, suggesting that it is the poorer who reacted more strongly with higher consumption to the emergency loans.

Sectoral Employment Effects of State Fiscal Relief: Evidence from the Great Recession, Lessons for the Covid-19 Crisis

State Fiscal Relief and Employment in the US

Christian Bredemeier, Falko Juessen, Roland Winkler

This paper documents that the employment effects of financial aid to U.S. states during the Great Recession were strongly unevenly distributed across sectors. We show that state fiscal relief had a double dividend: not only did it preserve a substantial number of jobs, but it also fostered employment most strongly in the sectors hit hardest by the recession. We exploit differences in the distribution of recessionary job losses across states to draw conclusions for the Covid-19 recession. Our results suggest that the double dividend of state fiscal relief cannot be taken for granted.

Defaulting on Covid Debt: Foreign or Domestic?

Wojtek Paczos and Kirill Shakhnov

The COVID-19 pandemic causes sharp reductions in economic output and sharp increases in government expenditures. This increases the riskiness of sovereign borrowing both domestically and internationally. We propose a framework to study debt sustainability by introducing domestic debt into a sovereign default model, in which the government sets distortionary labour taxes and decides whether to repay its past domestic and foreign obligations. The results show, that foreign default is more likely after a negative productivity shock, while domestic default is more likely after a negative expenditure shock. Even in the case of a recently proposed broad restructuring of foreign debt, governments may still selectively default on their domestic debt obligations.

Issue : 44

Pandemic Control in ECON-EPI Networks

Marina Azzimonti, Alessandra Fogli, Fabrizio Perri and Mark Ponder

We develop an ECON-EPI network model to evaluate policies designed to improve health and economic outcomes during a pandemic. Relative to the standard epidemiological SIR set-up, we explicitly model social contacts among individuals and allow for heterogeneity in their number and stability. In addition, we embed the network in a structural economic model describing how contacts generate economic activity. We calibrate it to the New York metro area during the 2020 COVID-19 crisis and show three main results. First, the ECON-EPI network implies patterns of infections that better match the data compared to the standard SIR. The switching during the early phase of the pandemic from unstable to stable contacts is crucial for this result. Second, the model suggests the design of smart policies that reduce infections and at the same time boost economic activity. Third, the model shows that re-opening sectors characterized by numerous and unstable contacts (such as large events or schools) too early leads to fast growth of infections.

The Optimal Allocation of Covid-19 Vaccines

Ana Babus, Sanmay Das, SangMok Lee

Covid-19 vaccine prioritization is key if the initial supply of the vaccine is limited. A consensus is emerging to first prioritize populations facing a high risk of severe illness in high-exposure occupations. The challenge is assigning priorities next among high-risk populations in low-exposure occupations and those that are young and healthy but work in high-exposure occupations. We estimate occupation-based infection risks and use age-based infection fatality rates in a model to assign priorities over populations with different occupations and ages. Among others, we find that 50-year-old food-processing workers and 60-year-old financial advisors are equally prioritized. Our model suggests a vaccine distribution that emphasizes age-based mortality risk more than occupation-based exposure risk. Designating some occupations as essential does not affect the optimal vaccine allocation unless a stay-at-home order is also in effect. Even with vaccines allocated optimally, 1.37% of the employed workforce is still expected to be infected with the virus until the vaccine becomes widely available, provided the vaccine is 50% effective, and assuming a supply of 60mil doses.

Wind of Change? Experimental Survey Evidence on the COVID-19 Shock and Socio-Political Attitudes in Europe

Politics: Trust and science

Gianmarco Daniele, Andrea F.M. Martinangeli, Francesco Passarelli, Willem Sas, Lisa Windsteiger

This paper investigates whether the COVID-19 crisis has affected the way we think about (political) institutions, as well as our broader (policy) attitudes and values. We fielded large online survey experiments in Italy, Spain, Germany and the Netherlands, well into the first wave of the epidemic (May-June), and included outcome questions on trust, voting intentions, policies & taxation, and identity & values. With a randomised survey flow we vary whether respondents are given COVID-19 priming questions first, before answering the outcome questions. With this treatment design we can also disentangle the health and economic effects of the crisis, as well as a potential “rally around the flag” component. We find that the crisis has brought about severe drops in interpersonal and institutional trust, as well as lower support for the EU and social welfare spending financed by taxes. This is largely due to economic insecurity, but also because of health concerns. A rallying effect around (scientific) expertise combined with populist policies losing ground forms the other side of this coin, and suggests a rising demand for competent leadership.

Did the COVID-19 Pandemic trigger nostalgia? Evidence of Music Consumption on Spotify

By scraping data of almost 17 trillion plays of songs on Spotify in six European countries, this work provides evidence that the lockdown imposed in the midst of the COVID-19 pandemic significantly changed the music consumption in terms of nostalgia. This work constructs a binary measure of nostalgia consumption of music and employs country-specific logistic regressions in which lockdown is taken as a treatment that interacts with a quadratic trend. The lockdown altered the trend of nostalgia consumption upward, which peaked roughly 60 days after the lockdown. A placebo test shows that the upward turn of slope is not an annual pattern. On the other hand, COVID incidence rate does not provide significant additional explanatory power to the model. This work shows that Spotify’s users react to the lockdown even when COVID incidence rate is low and the impact stays high even the incidence rate has peaked, suggesting that demand for nostalgia tends to respond to the drastic and lasting change caused by the lockdown rather than to the fluctuations in the viral infection.

Short-term Labour Market Effects of COVID-19 and the Associated National Lockdown in Australia: Evidence from Longitudinal Labour Force Survey

Short-term labour market effects

Cahit Guven, Panagiotis Sotirakopoulos and Aydogan Ulker

We examine the short-term labour market effects of COVID-19 and the associated national lockdown in Australia by estimating person-fixed-effects models using the Longitudinal Labour Force Survey. COVID-19 decreased labour force participation (LFP) by 2.1%, increased unemployment by 1.1% and reduced weekly working hours by 1.1. The national lockdown decreased LFP by 3.3%, increased unemployment by 1.7%, and decreased weekly working hours by 2.5. The probability of working on Fridays decreased by 10% while working fewer hours due to being on leave, work shifts, not having enough work and losing jobs all increased due to the lockdown. The pandemic and the lockdown increased underemployment and job search efforts significantly. In terms of heterogeneity of these effects, our analysis shows that those with up to high-school education experienced larger reductions in their LFP and working hours than others. However, immigrants and individuals with shorter job tenure or occupations unsuitable for remote work were hit the hardest in terms of unemployment.

The long-term economic cost of Covid-19 in the Consensus Forecasts

This note evaluates the expected economic toll of the Covid-19 pandemic in the Consensus Forecast surveys. It employs the surveys’ forecasts at different horizons. Its main findings are as follows. First, the recovery is expected to be neither U- nor V-shaped but “akin to a lopsided square root sign” (Tett (2020)). Second, because the recovery is slow and incomplete, GDP losses during the Lockdown represent a small fraction of the total GDP loss, expected to reach 3 to 4% per annum for the developed countries under review. Third, there are massive differences in the economic toll among countries, which are only partly explained by their public-health performances.

Issue : 43

The short-run effect of COVID-19 on new marketing endeavors: Evidence from EUIPO’s trademark applications

This study compares this year’s trend of EUIPO’s trademark applications during May and the first twenty days of June to 2019. There are four important findings. First, overall trademark applications appear to be at the same level to last year. Second, there is significant heterogeneity by country. While many countries are at the same levels to last year, China is an outlier increasing its filings dramatically compared to 2019. Certain countries also experience a sharp decrease including Canada and Brazil. Third, the presence of entrants is higher in 2020 compared to the same period of 2019. Finally, there are some clear winners and losers in terms of business activity. Overall, service-related endeavors are less frequent compared to last year while certain product-related initiatives have experienced a significant increase. This study urges dissemination of trademark applications, across Offices, in bulk to facilitate empirical work. Unlike patent applications, which take eighteen months to become known, information on trademark applications is disclosed relatively quickly. Since they can approximate real-time business expectations of demand and are related to innovation and firm value, they can provide us with significant insights in the short-run until more data become available.

Estimating the prevalence of the COVID-19 infection, with an application to Italy

Franco Peracchi and Daniele Terlizzese

Knowing the prevalence of the COVID-19 infection in a population of interest, and how it changes over time and across space, is of fundamental importance for public health. Unfortunately, the fraction of cases who turn out to be positive in a test provides a distorted picture of the prevalence of the infection because the tested cases are not a random sample of the population. Since random testing of the population is costly and complicated to carry out, in this note we show how to use the available information, in conjunction with credible assumptions about unknown quantities, to obtain a range of plausible values for the prevalence of the infection. We discuss the difference between two alternative measures of prevalence and argue that one of the two is much harder to pin down with the data currently available. We apply our method to the Italian data.

The fragmented US: The impact of scattered lockdown policies on country-wide infections

LOCKDOWNS ALSO HELP NEIGHBOURS

Jacek Rothert, Ryan Brady and Michael Insler

Fragmented by policies, united by outcomes: This is the picture of the United States that emerges from our analysis of the spatial diffusion of Covid-19 and the scattered lock-down policies introduced by individual states to contain it. We first use spatial econometric techniques to document direct and indirect spillovers of new infections across county and state lines, as well as the impact of individual states’ lock-down policies on infections in neighboring states. We find consistent statistical evidence that new cases diffuse across county lines, holding county level factors constant, and that the diffusion across counties was affected by the closure policies of adjacent states. Spatial impulse response functions reveal that the diffusion across counties is persistent for up to ten days after an increase in adjacent counties. We then develop a spatial version of the epidemiological SIR model where new infections arise from interactions between infected people in one state and susceptible people in the same or in neighboring states. We incorporate lock-down policies into our model and calibrate the model to match both the cumulative and the new infections across the 48 contiguous U.S. states and DC. Our results suggest that, had the states with the less restrictive social distancing measures tightened them by one level, the cumulative infections in other states would be about 5% smaller. In our spatial SIR model, the spatial containment policies such as border closures have a bigger impact on flattening the infection curve in the short-run than on the cumulative infections in the long-run.

Reacting quickly and protecting jobs: The short-term impacts of the COVID-19 lockdown on the Greek labor market

Gordon Betcherman, Nicholas Giannakopoulos, Ioannis Laliotis, Ioanna Pantelaiou, Mauro Testaverde and Giannis Tzimas

This paper uses administrative, survey, and online vacancy data to analyze the short-term labor market impacts of the COVID-19 lockdown in Greece. We find that flows into unemployment have not increased; in fact, separations were lower than would have been expected given trends in recent years. At the same time, employment was about 12 percent lower at the end of June than it would have been without the pandemic. The interrupted time series and difference-in-differences estimates indicate that this was due to a dramatic slowdown in hiring during months when job creation typically peaks in normal years, mostly in tourism. While we do not formally test the reasons for these patterns, our analysis suggests that the measures introduced to mitigate the effects of the crisis in Greece have played an important role. These measures prohibited layoffs in industries affected by the crisis and tied the major form of income support to the maintenance of employment relationships.

Days of Zipf and Covid? Looking for evidence of Zipf’s Law in the infected Brazil

DIFFUSION: BRAZIL VS ITALY

Victor S. Comittit and Claudio D. Shikida

Does the ranking of Covid-19 cases by municipalities follow a Zipf ’s law (i.e. an estimated Pareto exponent of one)? This note tries to answer this question using daily data from Brazil for the Mar 30 – Aug 06 period. We used a Poisson Pseudo Maximum Likelihood (PPML) estimator for our estimates and the result is that the Pareto exponent of the ranking of Covid-19 cases is converging to the one obtained for the population ranking and seems to follow the pattern of the Zipf ’s Law. We did the same exercise using Italian regions’ daily data which we use as a proxy to a long run equilibrium as the pandemic is apparently under control there. Contrary to Brazil, the Pareto exponent for the ranking for Covid-19 cases does not converge to the one estimated for the regular population. We try to advance some rationale for this contrasting behavior between them.

Issue : 42

Tracking inflation on a daily basis

Santiago E. Alvarez, Sarah M. Lein

Using online data for prices and real-time debit card transaction data on changes in expenditures for Switzerland allows us to track inflation on a daily basis. While the daily price index fluctuates around the official price index in normal times, it drops immediately after the lockdown related to the COVID19 pandemic. Official statistics reflect this drop only with a lag, specifically because data collection takes time and is impeded by lockdown conditions. Such daily real-time information can be useful to gauge the relative importance of demand and supply shocks and thus inform policy makers who need to determine appropriate policy measures.

Mask Wars: China’s Exports of Medical Goods in Times of COVID-19

How to Get Masks from China

Andreas Fuchs, Lennart Kaplan, Krisztina Kis-Katos, Sebastian S. Schmidt, Felix Turbanisch, and Feicheng Wang

The COVID-19 outbreak has cut China’s supply of and raised the world’s demand for face masks, disinfectants, ventilators, and other critical medical goods. This article studies the economic and political factors that are associated with China’s exports of medical equipment during the first two months of the global pandemic. Regression results show that—controlled for demand factors—countries with stronger past economic ties with China import more critical medical goods from China at both the national level and the level of Chinese provinces. Friendly political relations, such as the twinning of provinces, appear to work as a substitute for pre-existing economic ties at the provincial level. These findings imply that, to secure access to medical equipment in crises, countries are well advised to either diversify their sources or to develop closer relations with Beijing and China’s provinces.

COVID-19: What If Immunity Wanes?

M. Alper Çenesiz and Luís Guimarães

Using a simple economic model in which social-distancing reduces contagion, we study the implications of waning immunity for the epidemiological dynamics and social activity. If immunity wanes, we find that COVID-19 likely becomes endemic and that social-distancing is here to stay until the discovery of a vaccine or cure. But waning immunity does not necessarily change optimal actions on the onset of the pandemic. Decentralized equilibria are virtually independent of waning immunity until close to peak infections. For centralized equilibria, the relevance of waning immunity decreases in the probability of finding a vaccine or cure, the costs of infection (e.g., infection-fatality rate), and the presence of other NPIs that lower contagion (e.g., quarantining and mask use). In simulations calibrated to July 2020, our model suggests that waning immunity is virtually unimportant for centralized equilibria until at least 2021. This provides vital time for individuals and policymakers to learn about immunity against SARS-CoV-2 before it becomes critical.

Covid-19 across European regions: The role of border controls

Matthias Eckardt, Kalle Kappner and Nikolaus Wolf

Attempts to constrain the spread of Covid-19 included the temporal reintroduction of travel restrictions and border controls within the Schengen area. While such restrictions clearly involve costs, their benefits have been disputed. We use a new set of daily regional data of confirmed Covid-19 cases from the respective statistical agencies of 18 Western European countries. Our data starts with calendar week 10 (starting 2nd March 2020) and extends to calendar week 17 (ending 26th April 2020), which allows us to test for treatment effects of border controls. Based on PPML methods and a Bayesian INLA approach we find that border controls had a significant effect to limit the pandemic.

The Role of IMF in the Fight Against COVID-19: The IMF COVID RESPONSE INDEX

Kevin P. Gallagher and Franco Maldonado Carlin

This paper establishes a methodology that can be used to measure the behavior of International Monetary Fund (IMF) program design and eventually the outcomes of IMF programs in response to the COVID-19 crisis. We create an IMF COVID RECOVERY INDEX by coding IMF programs based on the extent to which they recommend or condition that borrowing countries increase efforts to combat the virus, protect the vulnerable, and stage a green recovery in accordance with direction from IMF leadership and fiscal guidance notes generated by the IMF Fiscal Affairs Department. Relative to earlier research that suggests the IMF falls short in making such policies part of recovery efforts during times past, our preliminary research indicates that the IMF is indeed prioritizing health and social spending during this crisis—albeit more so in programs where it has little leverage over the implementation of such recommendations. However, IMF support for greening the recovery does not match the rhetoric from IMF leadership or from fiscal guidance notes issued by the IMF Fiscal Affairs department at this time. The IMF COVID RECOVERY INDEX will be updated in real time on the internet, and eventually be used in econometric exercises that examine the extent to which IMF support for confronting the virus, protecting the vulnerable, and mounting a green recovery is associated with those desired outcomes.

Labor Market Effects of COVID-19 in Sweden and its Neighbors: Evidence from Novel Administrative Data

Labour Markets in the Nordic Countries

Steffen Juranek, Jörg Paetzold, Hanns Winner and Floris Zoutman

This paper studies the labor market effects of non-pharmaceutical interventions (NPIs) to combat the COVID-19 pandemic. We focus on the Nordic countries which showed one of the highest variations in NPIs despite having similar community spread of COVID-19 at the onset of the pandemic: While Denmark, Finland and Norway imposed strict measures (`lockdowns’), Sweden decided for much lighter restrictions. Empirically, we use novel administrative data on weekly new unemployment and furlough spells from all 56 regions of the Nordic countries to compare the labor market outcomes of Sweden with the ones of its neighbors. Our evidence suggests that the labor markets of all countries were severely hit by the pandemic, although Sweden performed slightly better than its neighbors. Specifically, we find the worsening of the Swedish labor market to occur around 2 to 3 weeks later than in the other Nordic countries, and that its cumulative sum of new unemployment and furlough spells remained significantly lower during the time period of our study (up to week 21 of 2020).

Issue : 41

Optimal vaccination and herd immunity

Optimal Vaccination and Herd Immunity

Stefano Bosi, Carmen Camacho and David Desmarchelier

Herd immunity is a central concept in epidemiology. It refers to a situation where the amount of recovered and immune individuals is high enough to protect susceptibles from contracting the disease. Herd immunity can be obtained naturally when individuals recover from the disease, or artificially after the administration of an appropriate vaccine. The present paper addresses the question of the amount of public spending in medical research to obtain a vaccine which maximizes welfare. Public spending is assumed to reduce the waiting time to discover a vaccine against an infectious disease evolving according to a SIR model. Both linear and logarithmic preferences are considered with and without time discounting. Worth to note, we show that if an economy has a sufficiently performing technology, then the government should invest as much as the initial public budget allows.

The economic consequences of ^R = 1: Towards a workable behavioural epidemiological model of pandemics

The Economic Consequences of ^R = 1

This paper reviews the literature on incorporating behavioural elements into epidemiological models of pandemics. While modelling behaviour by forward-looking rational agents can provide some insight into the time paths of pandemics, the non-stationary nature of Susceptible-Infected-Removed (SIR) models of viral spread makes characterisation of resulting equilibria dicult. Here I posit a shortcut that can be deployed to allow for a tractable equilibrium model of pandemics with intuitive comparative statics and also a clear prediction that effective reproduction numbers (that is, R) will tend towards 1 in equilibrium. This motivates taking ^R = 1 as an equilibrium starting point for analyses of pandemics with behavioural agents. The implications of this for the analysis of widespread testing, tracing, isolation and mask-use is discussed.

Health vs. Economy: Politically Optimal Pandemic Policy

Politically Optimal Policies

Desiree A. Desierto and Mark Koyama

Pandemics have heterogeneous effects on the health and economic outcomes of members of the population. To stay in power, politician-policymakers have to consider the health vulnerability- economic vulnerability (HV–EV) profiles of their coalition. We show that the politically optimal pandemic policy (POPP) reveals the HV–EV profile of the smallest, rather than the largest, group in the coalition. The logic of political survival dictates that the preferences of the least loyal, most pivotal, members of the coalition determine policy.

Lockdown and Voting Behaviour: A Natural Experiment on Postponed Elections during the COVID-19 Pandemic

Lockdown and Voting Behaviour

Tommaso Giommoni and Gabriel Loumeau

The goal of this paper is to study the impact of the lockdown policy on voting behaviour, during the COVID-19 pandemic. We focus on France, where a differential lockdown was implemented across departments, based on the local diffusion of the disease. In particular, the country has been divided in two areas, red and green, subject to a “hard” and a “soft” lockdown, respectively. To measure voting behaviour, before and after the policy, we rely on 2020 French municipal elections: the first round took place before the introduction of the restrictions, while the second round was delayed after the end of the lockdown. We estimate a Spatial Regression-Discontinuity-Design model comparing the difference in outcomes between the two electoral rounds, at the border of red and green areas. The main results suggest that lockdown regulations significantly affected electoral outcomes. First, in localities under a harder lockdown, the incumbent’s vote share is higher as well as the consensus for Green parties. Second, voter turnout is larger where more stringent restrictions are adopted. These results suggest that lockdown measures strongly lead citizens to rally around the local incumbent politicians.

The stochastic reproduction rate of a virus

Richard Holden and D.J. Thornton

We consider an SIR model where the probability of infections between infected and susceptible individuals are viewed as Poisson trials. The probabilities of infection between pairwise susceptible-infected matches are thus order statistics. This implies that the reproduction rate is a random variable. We derive the first two moments of the distribution of Rt conditional on the information available at time t−1 for Poisson trials drawn from an arbitrary parent distribution with finite mean. We show that the variance of Rt is increasing in the proportion of susceptible individuals in the population, and that ex ante identical populations can exhibit large differences in the path of the virus. This has a number of implications for policy during pandemics. We provide a rationale for why shelter-in-place orders may be a better containment measure than mandating the use of masks because of their impact on the variance of the reproduction rate.

The CoRisk-Index: A data-mining approach to identify industry-specific risk assessments related to COVID-19 in real-time

Fabian Stephany, Niklas Stoehr, Philipp Darius, Leonie Neuhäuser, Ole Teutloff and Fabian Braesemann

While the coronavirus spreads, governments are attempting to reduce contagion rates at the expense of negative economic effects. Market expectations plummeted, foreshadowing the risk of a global economic crisis and mass unemployment. Governments provide huge financial aid programmes to mitigate the economic shocks. To achieve higher effectiveness with such policy measures, it is key to identify the industries that are most in need of support.
In this study, we introduce a data-mining approach to measure industry- specific risks related to COVID-19. We examine company risk reports filed to the U. S. Securities and Exchange Commission (SEC). This alternative data set can complement more traditional economic indicators in times of the fast-evolving crisis as it allows for a real-time analysis of risk assessments. Preliminary findings suggest that the companies’ awareness towards corona-related business risks is ahead of the overall stock market developments. Our approach allows to distinguish the industries by their risk awareness towards COVID-19. Based on natural language processing, we identify corona-related risk topics and their perceived relevance for different industries.
The preliminary findings are summarised as an up-to-date online index. The CoRisk-Index tracks the industry-specific risk assessments related to the crisis, as it spreads through the economy. The tracking tool is up- dated weekly. It could provide relevant empirical data to inform models on the economic effects of the crisis. Such complementary empirical information could ultimately help policymakers to effectively target financial support in order to mitigate the economic shocks of the crisis.

Issue : 40

Socio-Demographic Factors Associated with Self-Protecting Behavior during the Covid-19 Pandemic

Socio-demographic Factors and Self-Protecting

Nicholas W. Papageorge, Matthew V. Zahn, Michèle Belot, Eline van den Broek-Altenburg, Syngjoo Choi, Julian C. Jamison and Egon Tripodi

Disease spread is in part a function of individual behavior. We examine the factors predicting individual behavior during the Covid-19 pandemic in the United States using novel data collected by Belot et al. (2020). Among other factors, we show that people with lower income, less flexible work arrangements (e.g., an inability to tele-work) and lack of outside space at home are less likely to engage in behaviors, such as social distancing, that limit the spread of disease. We also find that individuals in Florida and Texas (versus California and New York), men (versus women) and people who perceive fewer benefits of protective behaviors (versus those perceive more benefits) report lower levels of self-protecting behaviors. Broadly, our findings align with many typical relationships between health and socio-economic status. Moreover, we show that the burden of measures designed to stem the pandemic are unevenly distributed across socio-demographic groups in ways that affect behavior and thus potentially the spread of illness. Policies that assume otherwise are unlikely to be effective or sustainable.

Assessing the effectiveness of alternative measures to slow the spread of COVID-19 in the United States

Assessing Alternative Policies

Michael Gapen, Jonathan Millar, Blerina Uruçi and Pooja Sriram

To better understand the trade-offs at play as US states take measures to slow the spread of COVID-19, we investigate the effectiveness of alternative mitigation strategies using panel data estimates informed by epidemiological models. Our analysis evaluates public health outcomes using estimates of the effective reproduction number (Rt), which must drop below 1.0 to achieve sustained reductions in the infectious population. We fit outcomes for Rt on mitigation measures adopted by states, using daily data from early February through late June. Although all of the measures examined help reduce Rt, their effectiveness varies. Reductions in personal mobility on the scale achieved in April can reduce Rt by about a half and are especially effective when paired with stay-at-home orders. Alternatively, our estimates suggest that the virus could be brought under control using less-costly remediation measures. Those measures would likely involve more testing (at a rate of at least 1.75 million per day, if used in isolation), mask wearing requirements (which, in some specifications, are equivalent to testing 1.1mn persons per day), and restrictions on seated dining (which are effective when masks are not mandated). Finally, our estimates suggest that the US is nowhere near the point where “herd immunity” alone can bring infections under control

Who Suffers from the COVID-19 Shocks? Labor Market Heterogeneity and Welfare Consequences in Japan

Who Suffers from Covid in Japan

Shinnosuke Kikuchi, Sagiri Kitao and Minamo Mikoshiba

Effects of the COVID-19 shocks in the Japanese labor market vary across people of different age groups, genders, employment types, education levels, occupations, and industries. We document heterogeneous changes in employment and earnings in response to the COVID-19 shocks, observed in various data sources during the initial months after onset of the pandemic in Japan. We then feed these shocks into a life-cycle model of heterogeneous agents to quantify welfare consequences of the COVID-19 shocks.

In each dimension of the heterogeneity, the shocks are amplified for those who earned less prior to the crisis. Contingent workers are hit harder than regular workers, younger workers than older workers, females than males, and workers engaged in social and non-flexible jobs than those in ordinary and flexible jobs. The most severely hurt by the COVID-19 shocks has been a group of female, contingent, low-skilled workers, engaged in social and non-flexible jobs and without a spouse of a different group.

Optimal Social Distancing in SIR based Macroeconomic Models

Optimal Social Distancing

The paper introduces voluntary social distancing to the canonical epidemiology model, integrated into a conventional macroeconomic model. The model is extended to include treatment, vaccination, and government-enforced lockdown. Infection-averse individuals face a trade-off between a costly social distancing and the risk of getting infected and losing next-period labor income. We find an individual’s social distancing is proportional to the welfare loss she incurs when moving to the infected compartment. It increases in the individual’s psychological discount factor but decreases in the probability of receiving a vaccination. Quantitatively, a laissez-faire social distancing flattens the infection curve that minimizes the economic damage of the epidemic. A government-enforced social distancing is more effective in flattening the infection curve but has a detrimental effect on the economy.

V -, U -, L – or W-shaped economic recovery after COVID-19? Insights from an agent-based model

Dhruv Sharma, Jean-Philippe Bouchaud, Stanislao Gualdi, Marco Tarzia and Francesco Zamponi

We discuss the impact of a Covid-like shock on a simple toy economy, described by the Mark-0 Agent-Based Model that we developed and discussed in a series of previous papers. We consider a mixed supply and demand shock, and show that depending on the shock parameters (amplitude and duration), our toy economy can display V-shaped, U-shaped or W-shaped recoveries, and even an L-shaped output curve with permanent output loss. This is due to the existence of a self-sustained “bad” state of the economy. We then discuss two policies that attempt to moderate the impact of the shock: giving easy credit to firms, and the so-called helicopter money, i.e. injecting new money into the households savings. We find that both policies are effective if strong enough, and we highlight the potential danger of terminating these policies too early. Interestingly, when policy is successful, inflation post-crisis is significantly increased. While we only discuss a limited number of scenarios, our model is flexible and versatile enough to allow for a much wider exploration, thus serving as a useful tool for the qualitative understanding of post-Covid recovery.

Spreading the disease: The role of culture

Culture and Contagion in Germany

Ioannis Laliotis and Dimitrios Minos

This paper investigates the “cultural” transmission of the SARS-CoV-2 outbreak. Using data from Germany we observe that in predominantly Catholic regions with stronger social and family ties, the spread and the resulting deaths per capita were much higher compared to non-Catholic ones at the local NUTS-3 level. The result is strengthened with Difference-in-Difference estimates at the regional NUTS-1 level. This finding could help explain the rapid spread and high death toll of the virus in some European countries compared to others. Looking at differences within a specific country in a well identified setting eliminates biases due to different social structures, health care systems, specific policies and measures, and testing procedures for the virus that can confound estimates and hinder comparability across countries. Further, we use individual level data as well as mobility data from mobile devices to investigate potential mechanisms. The results highlight the cultural dimension of the spread and could suggest the implementation of targeted mitigation measures in light of disease outbreaks.

Growth forecasts and the Covid-19 recession they convey

With the help of growth forecasts and a simple structural model, we build a likely forward-looking account of the depth, length and shape of the recession as well as of the demand and supply shocks that are driving it. The results point to a V-shaped recession with partial recovery in advanced economies and to an L-shaped recession in emerging and developing economies. In addition, the projected shapes likely involve, in advanced economies, an output level shock, and in emerging and developing economies, an output growth shock. The depth and shape of the recession in output is important for fiscal debt sustainability analysis; in this matter the results are robust to the model parameters and assumptions. In turn, the depth and length of the recession in the output gap is critical for monetary and fiscal policies; in this matter we had to appeal to an assumption about the extent of the demand shock. The simple structural model does not have the problem of univariate filters that can misleadingly attribute to demand shocks a large part of the variability of output that is actually originated in supply shocks.

School disruption and pupil academic outcomes – evidence from the 2001 foot and mouth disease epidemic in England

School Disruption During Foot and Mouth Disease

The Covid-19 crisis has led to disruption to schooling across the world. Though it is recognized that pupils are suffering immediate learning loss, there exists a lack of understanding as to how this disruption might affect longer-term educational outcomes. This study considers this issue by examining the effect of school disruption in England due to restrictions put in place to manage the Foot and Mouth Disease epidemic in cattle in 2001. Using a difference in difference approach, I analyze whether primary schools that had been significantly disrupted by the epidemic experienced lower performance in standardized tests for pupils aged 11 in English, maths and science in the year of the outbreak and in subsequent years. I find that primary schools that had been significantly disrupted by the measures to contain the epidemic exhibited achievement falls in the year immediately after the outbreak, driven by sizeable falls in maths performance. The negative effects weaken in subsequent years suggesting that the effects of school disruption had faded out to some extent by the time that cohorts that were younger at the time of exposure took the age 11 tests.

Issue : 39

Global Macroeconomic Scenarios of the COVID-19 Pandemic

Global Macroeconomic Scenarios

Warwick McKibbin & Roshen Fernando

The COVID-19 global pandemic has caused significant global economic and social disruption. In McKibbin and Fernando (2020), we used data from historical pandemics to explore seven plausible scenarios of the economic consequences if COVID-19 were to become a global pandemic. In this paper, we use currently observed epidemiological outcomes across countries and recent data on sectoral shutdowns and economic shocks to estimate the likely global economic impacts of the pandemic under six new scenarios. The first scenario explores the outcomes if the current course of COVID-19 is successfully controlled, and there is only a mild recurrence in 2021. We then explore scenarios where the opening of economies results in recurrent outbreaks of various magnitudes and countries respond with and without economic shutdowns. We also explore the impact if no vaccine becomes available and the world must adapt to living with COVID-19 in coming decades. The final scenario is the case where a given country is in the most optimistic scenario (Scenario 1), but the rest of the world is in the most pessimistic scenario. The scenarios demonstrate that even a contained outbreak will significantly impact the global economy in the coming years. The economic consequences of the pandemic under plausible scenarios are substantial and the ongoing economic adjustment is far from over.

Take me out: De facto limits on strict lockdowns in developing countries

Tough Rules, Soft Implementation

Eduardo Levy Yeyati, Luca Sartorio

In the COVID-19 pandemic, lockdowns and containment measures were a fundamental tool to control the spread of the virus. In this article, we analyze data from 120 countries seeking to assess the stringency of de jure lockdown policies, comparing them with their de facto compliance and empirically analyzing the determinants of social distancing noncompliance. We find that, from a de jure perspective, almost all the strictest and longest lockdowns took place in emerging or developing economies. However, when analyzing its de facto compliance, we document a generalized and increasing non-compliance over time, which is significantly higher in emerging and developing economies. We show that lockdown compliance declines with time, and is lower in countries with stricter quarantines, lower incomes and higher levels of labor precariousness.

From Fear to Hate: How the COVID-19 Pandemic Sparks Racial Animus in the United States

From Fear to Hate: Racial Animus

Runjing Lu and Yanying Sheng

We estimate the effect of the coronavirus (COVID-19) pandemic on racial animus as measured by Google searches and Twitter posts, including a commonly used anti-Asian racial slur. Our empirical strategy exploits the plausibly exogenous variation in the timing of the first COVID-19 diagnosis across regions in the United States. We find that the first local diagnosis leads to an immediate increase in racist Google searches and Twitter posts, with the latter mainly due to existing Twitter users posting the slur for the first time. This increase could indicate a rise in future hate crimes as we document a strong correlation between the use of the slur and anti-Asian hate crimes using historic data. Moreover, we find that the rise in animosity is directed at Asians rather than other minority groups and is stronger in hours and on days when the connection between the disease and Asians is more salient, as proxied by the number of President Trump’s tweets mentioning China and COVID-19 simultaneously. In contrast, the negative economic impact of the pandemic plays little role in the initial increase in racial animus. Our results suggest that de-emphasizing the connection between the disease and a particular racial group can be effective in curbing current and future racial animus.

The gendered division of paid and domestic work under lockdown

Paid and Domestic Work: Gender matters

Alison Andrew , Sarah Cattan, Monica Costa Dias, Christine Farquharson, Lucy Kraftman, Sonya Krutikova, Angus Phimister & Almudena Sevilla

COVID-19 has uprooted many aspects of parents’ daily routines, from their jobs to their childcare arrangements. In this paper, we provide a novel description of how parents in England living in two-parent opposite-gender families are spending their time under lockdown. We find that mothers’ paid work has taken a larger hit than that of fathers’, on both the extensive and intensive margins. We find that mothers are spending substantially longer in childcare and housework than their partners and that they are spending a larger fraction of their paid work hours having to juggle work and childcare. Gender differences in the allocation of domestic work cannot be straightforwardly explained by gender differences in employment rates or earnings. Very large gender asymmetries emerge when one partner has stopped working for pay during the crisis: mothers who have stopped working for pay do far more domestic work than fathers in the equivalent situation do.

Epidemics and increasing returns to scale on social distancing

Returns to Scale on Social Distancing

It is shown that the standard Susceptible Infectious Recovered model of an epidemic implies that there for a large set of epidemic parameter values there will be increasing returns to scale if the objective is to limit the economic cost of infection. The explanation is that if an epidemic has a high basic reproduction number, a given amount of social distancing will not have much effect. The same amount may however be very effective if the reproduction number is lower, (but still larger than one.)

The cost of being unprepared or the benefit of the precautionary principle? Comparing cost-benefit COVID-19 policies and outcomes in Scandinavia

Brooks A. Kaiser, Henning Jørgensen, Lucas Porto Echave‑Sustaeta, Maarten J. Punt, Simon Sølvsten, Chris Horbel and Eva Roth

The Scandinavian countries of Denmark, Iceland, Norway and Sweden have approached the first months of the 2020 novel coronavirus pandemic with a range of economic and health policies that have resulted in disparate outcomes. Though similar in behavioral norms and institutions, Denmark, Iceland and Norway chose a precautionary approach that formally shut down schools and businesses to protect human health, while Sweden took a Business-As-Usual (BAU) approach aimed at maintaining normal economic and social activities. Iceland and Denmark have further invested in testing, tracking and containing the disease. Economic costs of the pandemic and government fiscal and monetary interventions to reduce their impacts have been dramatic and similar across countries, while Sweden has had the most severe loss of life. Using a panel from the four countries since the beginning of the pandemic, we calculate lives saved from stricter interventions by estimating cases and deaths as functions of behavior and government interventions with a bioeconomic model, then estimating the additional lives lost if these interventions did not occur. Comparison of the countries reveals three important lessons for both policies aimed at the pandemic and broader goals with high uncertainty levels: (1) the precautionary approach can be lowest cost, while still expensive; (2) detection and monitoring (e.g. testing and tracking) are integral to a successful precautionary approach; and (3) expecting tradeoffs between economic activity and health creates a false dichotomy – they are complements not substitutes. Pandemic policy should focus on minimizing expected costs and damages rather than attempting to exchange health and safety for economic well-being.

Coronagraben. Culture and social distancing in times of COVID-19

Culture and Social Distancing

Neha Deopa and Piergiuseppe Fortunato

Social distancing measures have been introduced in many countries in response to the COVID-19 pandemic. The rate of compliance to these measures has varied substantially. We study how cultural differences can explain this variance using data on mobility in Swiss cantons between January and May 2020. We find that mobility declined after the outbreak but significantly less in the German-speaking region. Contrary to the evidence in the literature, we find that within the Swiss context, higher generalized trust in others is strongly associated with lower reductions in individual mobility. Additionally, support for a limited role of the state in matters of welfare is also found to be negatively associated with mobility reduction. We attribute our results to a combination of these cultural traits having altered the trade-off between the chance of contracting the virus and the costs associated with significant alterations of daily activities.

Issue : 38

Mutual fund performance and flows during the COVID-19 crisis

Mutual fund performance and flows

Luboš Pástor and M. Blair Vorsatz

We present a comprehensive analysis of the performance and flows of U.S. actively managed equity mutual funds during the COVID-19 crisis of 2020. We find that most active funds underperform passive benchmarks during the crisis, contradicting a popular hypothesis. Funds with high sustainability ratings perform well, as do funds with high star ratings. Fund outflows largely extend pre-crisis trends. Investors favor funds that apply exclusion criteria and funds with high sustainability ratings, especially environmental ones. Our finding that investors remain focused on sustainability during this major crisis suggests they view sustainability as a necessity rather than a luxury good.

COVID-19 in emerging markets: firm-survey evidence

Firm Survey Evidence in Emerging Markets

Thorsten Beck, Burton Flynn and Mikael Homanen

Using survey responses across nearly 500 listed firms in 10 emerging markets from early April, we find the vast majority of firms were negatively affected by COVID-19. Firms reacted by reducing investment rather than payroll. There is a surprising degree of support vis-à-vis employees, customers, other stakeholders and broader society. Although stock prices initially reacted to the impact of the crisis, delayed stock price reactions suggest evidence of inefficient markets. Furthermore, we find evidence that stakeholder-centric firms experienced lower stock price declines during the crisis drawdown.

Financial Markets and News about the Coronavirus

Financial Markets and News

I examine how financial markets interact with news about the COVID-19 pandemic. A twelve topic model optimizes the trade-off between number of topics and topic coherence. Using this model, I show that before mid-March 2020 markets react more to the same quantum of news when volatility is higher – a phenomenon I call hypersensitivity. Formal tests identify a structural break in mid-March, post which markets are no longer hypersensitive. In the hypersensitive stage, markets are overly volatile and overreact to news. Despite hypersensitivity, lagged prices better forecast future COVID-19 case counts than do lagged news.

COVID-19, Race, and Redlining

Graziella Bertocchi and Arcangelo Dimico

Using individual, race-disaggregated, and georeferenced death data collected by the Cook County Medical Examiner, we look at the impact of COVID-19 on African Americans and at its determinants. First, we provide evidence that – as of June 16, 2020 – blacks in Cook County are dying from COVID-19 at a rate 1.3 times higher than their population share. Second, by combining the spatial distribution of mortality with the redlining maps for the Chicago area, we establish that – after the epidemic outbreak – historically lower-graded neighborhoods display a sharper increase in mortality, driven by blacks. Thus, we uncover a persistence influence of the racial segregation induced by the lending practices of the 1930s, by way of a diminished resilience of African Americans to the COVID-19 shock. Such influence is channeled through socioeconomic status and household composition, and magnified in combination with a higher black share.

Unequal Consequences of Covid 19 across Age and Income: Representative Evidence from Six Countries

Age and Income Inequities

Michèle Belot, Syngjoo Choi, Egon Tripodi, Eline van den Broek-Altenburg, Julian C. Jamison and Nicholas W. Papageorge

Covid-19 and the measures taken to contain it have led to unprecedented constraints on work and leisure activities, across the world. This paper uses nationally representative surveys to document how people of different ages and incomes have been affected across six countries (China, South Korea, Japan, Italy, UK and US). We first document changes in economic variables (income and consumption) and leisure. Second, we document self-reported negative and positive non-financial effects of the crisis. We then examine attitudes towards recommendations (wearing a mask in particular) and the approach taken by public authorities. We find similarities across countries in how people of different generations have been affected. Young people have experienced more drastic changes to their lives, and overall they are less supportive of these measures. These patterns are less clear across income groups: while some countries have managed to shield lower income individuals from negative consequences, others have not. We also show that how people have been affected by the crisis (positively or negatively) does little to explain whether or not they support measures implemented by the public authorities. Young people are overall less supportive of such measures independently of how they have been affected.

Consumption and Geographic Mobility in Pandemic Times: Evidence from Mexico

Consumption and Geographic Mobility

Raymundo M. Campos-Vazquez, and Gerardo Esquivel

We analyze the universe of point-of-sale (POS) transactions before and during the COVID-19 lockdown in Mexico. We find three key results. First, consumption in Mexico fell by 23 percent in the April-June quarter of 2020. Second, reductions in consumption were highly heterogeneous across sectors and states, with states and activities related to tourism the most affected. Third, using variation over time and states, we estimate the elasticity of POS expenditures with respect to geographic mobility (measured using cellphone location data) to be slightly less than 1. This estimate suggests that spending in developing countries may be more responsive to mobility than in developed countries, and that mobility indicators could be used as a real-time proxy for consumption in some economies.

Issue : 37

Cities and COVID-19 infections: population density, transmission speeds and sheltering responses

Population Density Matters

The transmission and incidence of COVID-19 infections differ markedly across areas in the U.S. Using daily infection rates at the county level, this paper explores how population density and the organization of the city correlate to the speed of transmission and shelter-in-place responses (staying home, avoiding travel). Population density is associated with higher transmission speeds in particular at the start of outbreaks. Density is also associated with stronger sheltering responses, but mostly in later phases of the outbreak. There is a considerable additional role of the urban form (i.e., public transport, work-from-home and local incomes), in transmission and sheltering. Over the course of the pandemic, workplace connections are increasingly less likely to predict infection, and phone movement shows that people avoid heavily infected areas. Altogether, this suggests that densely populated places are initially prone to faster viral spread, and later develop stronger sheltering responses. The considerable spatial differences in both the speed of transmission and the mobility responses to local infection could explain differences in the pandemic’s toll across cities and counties.

Propagation of Epidemics’ Economic Impacts via Production Networks: The Cases of China and ASEAN during SARS and COVID-19

Ammu Georgea, Changtai Lib, Jing Zhi Limc, and Taojun Xied

Two decades after the SARS outbreak, Asia is confronted with COVID-19 which has caused a greater economic impact to the region. In this paper, using China and the ASEAN’s experiences of SARS and COVID-19 as a case study, we aim to identify the economic impact of a pandemic that is associated with global production linkages. We construct a novel general equilibrium model of production networks with epidemiological dynamics. Calibrating the model with the OECD inter-country input-output tables for the pre-SARS and pre-COVID-19 periods, and controlling for disease dynamics across years, we find that, in the absence of policy intervention, greater importance of China in the global value chains is associated with greater economic impacts, both within China and in the ASEAN region.

Change points in the spread of COVID-19 question the effectiveness of nonpharmaceutical interventions in Germany

More Precise Dating Makes a Difference

Nonpharmaceutical interventions against the spread of SARS-CoV-2 in Germany included the cancellation of mass events (from March 8), closures of schools and child day care facilities (from March 16) as well as a “lockdown” (from March 23). This study attempts to assess the effectiveness of these interventions in terms of revealing their impact on infections over time. Dates of infections were estimated from official German case data by incorporating the incubation period and an empirical reporting delay. Exponential growth models for infections and reproduction numbers were estimated and investigated with respect to change points in the time series. A significant decline of daily and cumulative infections as well as reproduction numbers is found at March 8, March 10 and March 3, respectively. Further declines and stabilizations are found in the end of March. There is also a change point in new infections at April 19, but daily infections still show a negative growth. From March 19, the reproduction numbers fluctuate on a level below one. The decline of infections in early March 2020 can be attributed to relatively small interventions and voluntary behavioural changes. Additional effects of later interventions cannot be detected clearly. Liberalizations of measures did not induce a re-increase of infections. Thus, the effectiveness of most German interventions remains questionable. Moreover, assessing of interventions is impeded by the estimation of true infection dates and the influence of test volume.

Lockdown, pandemics and quarantine: Assessing the Indian evidence

Lockdowns and Health Preparedness in India

The COVID-19 pandemic has put the global economy under a scanner. India has also been impacted by the pandemic and as a result, policymakers have undertaken significant set of measures to address the challenge. In this context, using daily state-level data, we utilize the staggered timing of the implementation of lockdown to ascertain its impact on the number of Covid19 cases. Our analysis appears to suggest that notwithstanding the lockdown, the number of Covid19 cases increased by 80% and furthermore, there was a differential impact across states, depending on their extent of health preparedness. Robustness tests support these findings.

Information and Behavioral Responses during a Pandemic: Evidence from Delays in Covid-19 Death Reports

Fatality Reporting Delays

Emilio Gutierrez, Adrian Rubli, and Tiago Tavares

Information is an important policy tool for managing epidemics, but issues with data collection may hinder its effectiveness. Focusing on Covid-19 in Mexico, we ask whether delays in reporting deaths affect individuals’ beliefs and behavior. Leveraging an online survey, we randomly provide information to respondents either accounting or not for delays in death reports. We find that not accounting for delays leads to a lower perceived risk of contagion and intention to comply with social distancing. An equilibrium model incorporating the endogenous behavioral response documented by our intervention illustrates the effect of reporting delays on the evolution of the epidemic

Socioeconomic conditions, government interventions and health outcomes during COVID-19

The COVID-19, after hitting hard the developed regions of Europe and the United States, is now fast spreading in relatively less developed regions including the Latin America, South Asia and the African continent. In this paper, we examine the impact of socioeconomic conditions on the health outcomes by COVID-19 and the moderating role of government emergency measures on the relationship between socioeconomic conditions and the health outcomes by COVID-19. Using a panel dataset consisting of 9529 daily observations from 80 countries over the period from January 22 to May 20, 2020, we find that socioeconomic circumstances have strong negative association with COVID-19 confirmed cases and deaths per million people. Quantitatively, a one standard deviation improvement in socioeconomic conditions lowers COVID-19 confirmed cases and deaths per million people by one half. Next, with the help of interaction terms between socioeconomic conditions and government emergency policies, we find that stringent social distancing measures and generous income support programs help to lower the cases and deaths particularly in countries with poor socioeconomic conditions. These findings have important implications to design the right set of government policies to lower the lives losses in countries and regions with poor socioeconomic conditions.

Issue : 36

Tracking the Economic Impact of COVID-19 and Mitigation Policies in Europe and the United States

Comparing European Countries and US States

Sophia Chen, Deniz Igan, Nicola Pierri, and Andrea F. Presbitero

We use high-frequency indicators to analyze the economic impact of COVID-19 in Europe and the United States during the early phase of the pandemic. We document that European countries and U.S. states that experienced larger outbreaks also suffered larger economic losses. We also find that the heterogeneous impact of COVID-19 is mostly captured by observed changes in people’s mobility, while, so far, there is no robust evidence supporting additional impact from the adoption of non-pharmaceutical interventions. The deterioration of economic conditions preceded the introduction of these policies and a gradual recovery also started before formal reopening, highlighting the importance of voluntary social distancing, communication, and trust-building measures.

Sudden Stop: When Did Firms Anticipate the Potential Consequences of COVID-19?

How Firms Form Expectations

Lukas Buchheim, Carla Krolage and Sebastian Link

COVID-19 hit firms by surprise. In a high frequency, representative panel of German firms, the business outlook declined and business uncertainty increased only when the spread of the COVID-19 pandemic led to domestic policy changes: The announcement of nation-wide school closures on March 13 caused by far the largest change in business perceptions. In contrast, business perceptions hardly reacted to any other potential source of information: Firms did not learn from foreign policy measures, even if they relied on inputs from China or Italy. The local, county-level spread of COVID-19 cases affected expectations and uncertainty, albeit to a much lesser extent than the domestic policy changes.

COVID-19: Pandemics, recessions, and suicide – lessons from the past and points to the future

Pandemics, Recessions and Suicide: A Survey

Eudora Maria de Castro Ribeiro

Fear and imposed isolation worldwide due to the outbreak of the coronavirus disease (COVID-19) have raised alarms about its impact on mental health on a global scale. Associated with the respiratory disease and the public health threat, confinement, isolation, and social distance were presented as the only effective measures to prevent the spread of the virus. For those who already have psychological disorders, it is one additional factor of distress and tension. For those who do not have them, this is, in the overwhelming majority, a whole new situation and a possible cause of anxiety, stress, and depression. Besides, the severe anticipated global recession, following the lockdown of economies resulting from the virus containment strategies, should lead to substantial increases in unemployment rates and indebtedness levels, which are both risk factors for suicide. History has shown us that previous pandemics and recessions harmed population mental health, having a negative impact, namely in suicidal behaviors. The present literature review intends to alert to the prevention of suicide amid the COVID-19 pandemic, based on past similar scenarios of epidemics, such as the Spanish flu and SARS, and recessions, namely the Great Recession, the Asian economic crisis (1997-1998) and the Russian economic crisis (early 1990s). A positive sign was the fact that at the end of March, several organizations and entities worldwide, namely in Portugal, had (already) made available resources to tackle population stress and avoid negative impacts on mental health. Moreover, specialized publications had warned about the possible effects of COVID-19 on suicidal behaviors. Two months after, the subject was still active and alive on the Web. The literature also shows that the recipe to mitigate depressions and suicide behaviors in times of pandemics and recessions seems to be known: investment in mental healthcare, namely suicide prevention services, and in active employment policies.

Right and yet wrong: A spatio-temporal evaluation of Germany’s COVID-19 containment policy

Right and Yet Wrong: Containment Policy in Germany

Michael Berlemann and Erik Haustein

In order to get the COVID-19 pandemic under control, most governments around the globe have adopted some sort of containment policies. In the light of the enormous costs of these policies, in many countries highly controversial discussions on the adequacy of the chosen policies evolved. We contribute to this discussion by evaluating three waves of containment measures adopted by the German government. Based on a spatio-temporal endemic-epidemic model we show that in retrospective, only the first wave of containment measures clearly contributed to flattening the curve of new infections. However, a real-time analysis using the same empirical model reveals that based on the then available information, the adoption of additional containment measures was warranted. Moreover, our spatio-temporal analysis shows that a one-size-fits-all policy, as it was adopted in Germany on the early stages of the epidemic, is not optimal.

Why Can’t Everybody Work Remotely? Blame the Robots.

A renewed interest in the ability to work remotely has arisen due to COVID-19. This paper seeks to understand the technological antecedents of that ability. We construct county-level measures of the ability to work at home (wah) using industry and occupation data from a variety of sources, and correlate these with county-level measures of automation and new-task implementation. Empirical results suggest that regions that faced automation produced job opportunities with lower wah, while regions that faced new innovation demonstrate no clear pattern. Finally we show that regions with low wah tend to employ lower-skilled immigrant populations, and have suﬀered higher unemployment due to COVID. Even as many technologies increase the ability of workers to work remotely, automating technologies tend to counter this, raising the potential for the need to shutdown certain industrial centers due to the COVID pandemic.

The COVID-19 Shock and Consumer Credit: Evidence from Credit Card Data

Akos Horvath, Benjamin Kay and Carlo Wix

We use monthly credit card data from the Federal Reserve’s Y-14M reports to study the early impact of the COVID-19 shock on the use and availability of consumer credit. First, we find that in counties severely affected by the pandemic, creditworthy borrowers reduce their credit card balances and credit card transactions, while the least creditworthy borrowers increase their outstanding balances. Second, while both local pandemic severity and non-pharmaceutical interventions (NPIs) have a significantly negative effect on credit use, the pandemic itself is the main driver. Third, we report a drastic reduction in credit card originations, which is more pronounced in counties affected by pandemic severity and in counties with more stringent NPIs. Finally, we find a reduction in the credit limits and an increase in the APR spreads of newly issued credit cards to the riskiest borrowers, which is consistent with a “flight-to-safety” response of banks to the COVID-19 shock.

Issue : 35

Hesitancy towards a COVID-19 vaccine and prospects for herd immunity

Linda Thunström, Madison Ashworth, David Finnoff and Stephen C. Newbold

The scientific community has come together in an unprecedented effort to find a COVID-19 vaccine. However, the success of any vaccine depends on the share of the population that gets vaccinated. We design a survey experiment in which a nationally representative sample of 3,133 adults in the U.S. state their intentions to vaccinate themselves and their children for COVID-19. In the experiment, we account for uncertainty about the severity and infectiousness of COVID-19, as well as inconsistencies in risk communication from government authorities, by varying these factors across treatments. We find that 20% of people in the U.S. would decline the vaccine. General vaccine hesitancy (including not having had a flu shot in the last two years), distrust of vaccine safety, and vaccine novelty are among the most important deterrents to vaccination. Further, our results suggest that inconsistent risk messages from public health experts and elected officials reduce vaccine uptake. We use our survey results in an epidemiological model to explore conditions under which a vaccine could achieve herd immunity. We find that in a middle-of-the-road scenario with central estimates of model parameters, a vaccine will benefit public health by saving many lives but nevertheless may fail to achieve herd immunity.

A simple method to estimate firms’ liquidity needs during the Covid-19 crisis with an application to Italy

Fabiano Schivardi and Guido Romano

We propose a simple method based on firms’ balance sheets and sectoral predictions of sales growth to determine the firms that will become illiquid month by month as the Covid-19 crisis unfolds. We apply the method to the population of Italian incorporated businesses to the end of 2020. We find that at the peak, around 200,000 companies employing 3.3 million workers would become illiquid. The progression is fast, with 180,000 firms turning illiquid already by April. The liquidity shortage, defined as the “negative” liquidity stock of illiquid firms, amounts to 72 billion. We evaluate the Italian government liquidity decree, which provides guarantees for bank loans under four different facilities of increasing complexity. Assuming that firms have access to all the facilities, almost all firms are able to cover their liquidity shortfalls. The issue is the speed of implementation: the facilities supplying more liquidity are more complex to administrate, and many firms require these facilities to cover their liquidity shortfalls. Overall, we conclude that even in the case of a second wave after the summer, which would increase the liquidity shortfall substantially, firms’ liquidity needs are manageable under the current schemes of liquidity provision.

Quantifying the Impact of Non-pharmaceutical Interventions (NPI) during the COVID-19 Outbreak – The Case of Sweden

This paper estimates the effect of non-pharmaceutical intervention (NPI) policies on public health during the recent COVID-19 outbreak by considering a counterfactual case for Sweden. Using a synthetic control approach, I find that strict initial lockdown measures played an important role in limiting the spread of the COVID-19 infection and that Swedish policymakers would have eventually reduced the infection cases by more than half had they followed those policies. As people dynamically adjust their behavior in response to information and policies, the impact of NPIs becomes visible with a time lag of around 5 weeks. An alternative difference-in-differences research design that allows for changes in behavioral patterns also confirms the effectiveness of a strict lockdown policy. Finally, extending the analysis to excess mortality, I find that the lockdown measures would have lowered excess mortality in Sweden by 23 percentage points, with a steep age gradient of more than 30 percentage points for the most vulnerable elderly cohort. The outcome of this study can help policymakers lay out future policies to further protect public health, as well as facilitate an economic plan for recovery.

Weighting bias and inflation in the time of Covid-19: Evidence from Swiss transaction data

Sharp changes in consumer expenditure may bias inflation during the Covid-19 pandemic. Using public data from debit card transactions, I quantify these changes in consumer spending, update CPI basket weights and construct an alternative price index to measure the effect of the Covid-induced weighting bias on the Swiss consumer price index. I find that inflation was higher during the lock-down than suggested by CPI inflation. The annual inflation rate of the Covid price index was -0.4% by April 2020, compared to -1.1% of the equivalent CPI. Persistent “low-touch” consumer behaviour can further lead to inflation being underestimated by more than a quarter of a percentage point until the end of 2020.

Causal impact of masks, policies, behavior on early Covid-19 pandemic in the US

The Impact of Masks, Policies and Behavior

Victor Chernozhukov, Hiroyuki Kasahara and Paul Schrimpf

This paper evaluates the dynamic impact of various policies adopted by US states on the growth rates of confirmed Covid-19 cases and deaths as well as social distancing behavior measured by Google Mobility Reports, where we take into consideration people’s voluntarily behavioral response to new information of transmission risks. Our analysis finds that both policies and information on transmission risks are important determinants of Covid-19 cases and deaths and shows that a change in policies explains a large fraction of observed changes in social distancing behavior. Our counterfactual experiments suggest that nationally mandating face masks for employees on April 1st could have reduced the growth rate of cases and deaths by more than 10 percentage points in late April, and could have led to as much as 17 to 55 percent less deaths nationally by the end of May, which roughly translates into 17 to 55 thousand saved lives. Our estimates imply that removing non-essential business closures (while maintaining school closures, restrictions on movie theaters and restaurants) could have led to -20 to 60 percent more cases and deaths by the end of May. We also find that, without stay-at-home orders, cases would have been larger by 25 to 170 percent, which implies that 0.5 to 3.4 million more Americans could have been infected if stay-at-home orders had not been implemented. Finally, not having implemented any policies could have led to at least a 7 fold increase with an uninformative upper bound in cases (and deaths) by the end of May in the US, with considerable uncertainty over the effects of school closures, which had little cross-sectional variation.

Transition model for coronavirus management

Transitions in Health Status

Antoine Djogbenou, Christian Gourieroux, Joann Jasiak, Paul Rilstone and Maygol Bandehali

This paper examines the individual records of patients treated for COVID-19 during the early phase of the epidemic in Ontario. We trace out daily transitions of patients through medical care of different intensity and address the right truncation in the database. We also examine the sojourn times and reveal duration dependence in the treatments for COVID-19. The transition model is used to estimate and forecast the counts of patients treated for COVID-19 in Ontario, while accommodating the right truncation and right censoring in the sample. This research is based on the Public Health Ontario (PHO) dataset from May 07, 2020.

Task content and job losses in the Great Lockdown

Task Content and Job Losses

I examine the short-term labor market effects of the Great Lockdown in the United States. I analyze job losses by task content (Acemoglu & Autor 2011), and show that they follow underlying trends; jobs with a high non-routine content are especially well-protected, even if they are not teleworkable. The importance of the task content, particularly for non-routine cognitive analytical tasks, is strong even after controlling for age, gender, race, education, sector and location (and hence for differential demand shocks). Jobs subject to higher structural turnover rates are much more likely to be terminated, suggesting that easier-to-replace employees were at a particular disadvantage, even within sectors; at the same time, there is evidence of labor hoarding for more valuable matches. Individuals in low-skilled jobs fared comparatively better in industries with a high share of high-skilled workers.

Weather, social distancing, and the spread of COVID-19

Weather and Social Distancing

Using high-frequency panel data for U.S. counties, I estimate the full dynamic response of COVID-19 cases and deaths to exogenous movements in mobility and weather. I find several important results. First, weather and mobility are highly correlated and thus omitting either factor when studying the COVID-19 effects of the other is likely to result in substantial omitted variable bias. Second, temperature is found to have a negative and significant effect on future COVID-19 cases and deaths, though the estimated effect is sensitive to which measure of mobility is included in the regression. Third, controlling for weather, overall mobility is found to have a large positive effect on subsequent growth in COVID-19 cases and deaths. The effects become significant around 2 weeks ahead and persist through around 8 weeks ahead for cases and around 9 weeks ahead for deaths. The peak impact occurs 4 to 6 weeks ahead for cases and around 8 to 9 weeks ahead for deaths. The effects are largest for mobility measured by time spent away from home and time spent at work, though significant effects also are found for time spent at retail and recreation establishments, at transit stations, at grocery stores and pharmacies, and at parks. Fourth, I find that public health non-pharmaceutical interventions affect future COVID-19 cases and deaths, but that their effects work entirely through, and not independent of, individuals’ mobility behavior. Lastly, the dynamic effects of mobility on COVID-19 outcomes are found to be generally similar across counties, though there is evidence of larger effects in counties with high cases per capita and that reduced mobility relatively late.

Issue : 34

Pandemic economics: Optimal dynamic confinement under uncertainty and learning

Uncertainty, Learning, and Optimal Lockdown

Most integrated models of the covid pandemic have been developed under the assumption that the policy-sensitive reproduction number is certain. The decision to exit from the lockdown has been made in most countries without knowing the reproduction number that would prevail after the deconfinement. In this paper, I explore the role of uncertainty and learning on the optimal dynamic lockdown policy. I limit the analysis to suppression strategies. In the absence of uncertainty, the optimal confinement policy is to impose a constant rate of lockdown until the suppression of the virus in the population. I show that introducing uncertainty about the reproduction number of deconfined people reduces the optimal initial rate of confinement.

Nature of Work and Distribution of Risk: Evidence from Occupational Sorting, Skills, and Tasks

Distribution of Health, Income and Unemployment Risk

How does the nature of work – teleworkability and contact intensity – shape the distribution of health, labor income, and unemployment risks, created by the COVID-19 pandemic? To answer this question, we consider two contexts. First, we show that the existing spousal nature-of-work-based occupational sorting in the United States matters for the distribution of these risks. In particular, we show that it mitigates the risk of catching COVID-19 through intra-household contagion relative to the case of zero sorting. Furthermore, we show that it creates a larger fraction of couples, who are excessively exposed to labor income and unemployment risks, relative to the case of zero sorting. Second, we document that teleworkable occupations require higher education and experience levels as well as greater cognitive, social, character, and computer skills relative to non-teleworkable occupations. This discrepancy affects labor income and unemployment risks by increasing the likelihood of skill mismatch for newly unemployed workers. Our results imply that the current economic downturn may have long-run effects on employment prospects and earnings of workers who had non-teleworkable or high-contact-intensity jobs at the onset of the COVID-19 outbreak. We discuss the relevant policy implications and associated policy constraints that follow from our findings.

The Real Cost of Political Polarization: Evidence from the COVID-19 Pandemic

Christos A. Makridis and Jonathan T. Rothwell

While the SARS-CoV2 pandemic has led to a rapid increase in unemployment across the United States, some states have fared better than others at minimizing economic damage and suppressing the disease burden. We examine the political factors behind these outcomes at the individual and institutional levels. First, using new daily data from the Gallup Panel between March and June on roughly 45,000 individuals, we document that heterogeneity in beliefs about the pandemic and social distancing behaviors is driven primarily by political affiliation. In fact, it is systematically more predictive than factors directly connected to the disease, including age, county infections per capita, and state public health policies. Second, we investigate how partisanship led states to adopt laxer or stricter policies during the pandemic. While the more extreme policies have had negative effects on either economic activity or public health, middle-of-the-road policies (e.g., mask-mandates) have been more effective at curbing infections without significant economic damages. However, the effectiveness of these policies—and compliance with them—is mediated by political affiliation. Our results suggest that partisanship can have persistent effects on economic activity and health beyond its effects on sentiment, moving individuals and institutions away from optimal policy.

The 2008 Global Financial Crisis and COVID-19 Pandemic: How Safe are the Safe Haven Assets?

Muhammad A. Cheema, Robert Faff, Kenneth R. Szulczyk

This paper compares the performance of safe haven assets during two stressful stock market regimes – the 2008 Global Financial Crisis (GFC) and COVID-19 pandemic. Our analysis across the ten largest economies in the world shows that the traditional choice, gold, acts as a safe haven during the GFC but fails to protect investor wealth during COVID. Our results suggest that investors might have lost trust in gold. Furthermore, silver does not serve as a safe haven during either crisis, while US Treasuries and the Swiss Franc generally act as strong safe havens during both crises. The US dollar acts as a safe haven during the GFC for all the countries except for the United States, but only for China and India during COVID. Finally, Bitcoin does not serve as a safe haven for all countries during COVID; however, the largest stablecoin, Tether, serves as a strong safe haven. Thus, our results suggest that, during a pandemic, investors should prefer liquid and stable assets rather than gold.

Delays in Death Reports and their Implications for Tracking the Evolution of COVID-19

Emilio Gutierrez, Adrian Rubli, and Tiago Tavares

Understanding the determinants and implications of delays in reporting COVID-19 deaths is important for managing the epidemic. Contrasting England and Mexico, we document that reporting delays in Mexico are larger on average, exhibit higher geographic heterogeneity, and are more responsive to the total number of occurred deaths in a given location-date. We then estimate simple SIR models for each country to illustrate the implications of not accounting for reporting delays. Our results highlight the fact that low and middle-income countries are likely to face additional challenges during the pandemic due to lower quality of real-time information.

Consumer Spending Responses to the Covid-19 Pandemic: An Assessment of Great Britain

Consumption in Great Britain

Dimitris K. Chronopoulos, Marcel Lukas, John O.S. Wilson

Since the first death in China in early January 2020, the coronavirus (Covid-19) has spread across the globe and dominated the news headlines leading to fundamental changes in the health, social and political landscape, and an unprecedented negative impact on the current and future prospects of households, businesses and the macro-economy. In this paper, we examine consumer spending responses to the onset and spread of Covid-19, and subsequent government imposed lockdown in Great Britain, GB (England, Scotland, Wales). Our sample period spans January 1st 2020 to 7th April 2020. This allows us to observe consumer spending behavior from the initial incubation phase of the crisis. We partition the sample period into incubation (1st-17th January), outbreak (January 18th-February 21st), fever (February 22nd-March 22nd), lockdown (March 23rd–May 10th 2020) and stay alert (May 11th- June 18th) phases. Using a high frequency transaction level proprietary dataset comprising 101,059 consumers and 23 million transactions made available by a financial technology company, we find that discretionary spending declines during the fever period as the government imposed lockdown becomes imminent, and continues to decline throughout the lockdown period. Shortly after the May 10th ‘stay alert’ announcement by Prime Minister Johnson, a short-term decline in spending across all nations occurs. However, a week later, spending is at the same level as that observed prior to the announcement. There is a strong increase in groceries spending consistent with panic buying and stockpiling behaviour in the two weeks following the World Health Organisation (WHO) announcement describing Covid-19 as a pandemic. Variations in the level and composition of consumer spending across nations and regions (particularly during the early stages of the outbreak period), and by age, gender and income level are also observed. Our results are of particular relevance to government agencies tasked with the design, execution and monitoring economic impacts arising from the spread of the virus and the public health measures imposed to mitigate the health costs of the crisis.

Issue : 33

What Should We Spend to Save Lives in a Pandemic? A Critique of the Value of Statistical Life

A Critique of the Value of Statistical Life

The value of statistical life (VSL) is a risk-to-money conversion factor that can be used to accurately approximate an individual’s willingness-to-pay for a small change in fatality risk. If an individual’s VSL is (say) $7 million, then she will be willing to pay approximately $7 for a 1-in-1-million risk reduction, $70 for a 1-in-100,000 risk reduction, and so forth.

VSL has played a central role in the rapidly emerging economics literature about COVID-19. Many papers use VSL to assign a monetary value to the lifesaving benefits of social-distancing policies, so as to balance those benefits against lost income and other policy costs. This is not surprising, since VSL (known in the U.K. as “VPF”: value of a prevented fatality) has been a key tool in governmental cost-benefit analysis for decades and is well established among economists.

Despite its familiarity, VSL is a flawed tool for analyzing social-distancing policy—and risk regulation more generally. The standard justification for cost-benefit analysis appeals to Kaldor-Hicks efficiency (potential Pareto superiority). But VSL is only an approximation to individual willingness to pay, which may become quite inaccurate for policies that mitigate large risks (such as the risks posed by COVID-19)—and thus can recommend policies that fail the Kaldor-Hicks test.

This paper uses a simulation model of social-distancing policy to illustrate the deficiencies of VSL. I criticize VSL-based cost-benefit analysis from a number of angles. Its recommendations with respect to social distancing deviate dramatically from the recommendations of a utilitarian or prioritarian social welfare function. In the model here, it does indeed diverge from Kaldor-Hicks efficiency. And its relative valuation of risks and financial costs among groups differentiated by age and income lacks intuitive support. Economists writing about COVID-19 need to reconsider using VSL.

The Gender Gap in Mental Well-Being During the Covid-19 Outbreak: Evidence from the UK

Gender Gap in Mental Well-Being

Ben Etheridge and Lisa Spantig

We document a decline in mental well-being after the onset of the Covid-19 pandemic in the UK. This decline is more than twice as large for women as for men. We seek to explain this gender gap by exploring gender differences in: family and caring responsibilities; financial and work situation; social engagement; health situation, and health behaviours, including exercise. We discuss two dimensions of gender differences, the extent to which particular circumstances relate to well-being and the share of individuals facing a given circumstance. Overall, we find that differences in family and caring responsibilities can explain a part of the gender gap, but the bulk is explained by social factors such as loneliness. Other factors such as financial difficulties or age are similarly distributed across genders and thus play little role in explaining the gap.

The effect of the 1918 Influenza Pandemic on Income Inequality: Evidence from Italy

Inequality During the 1918 Influenza

Sergio Galletta and Tommaso Giommoni

In this paper, we estimate the effect of the 1918 influenza pandemic on income inequality in Italian municipalities. Our identification strategy exploits the exogenous diffusion of influenza across municipalities by infected soldiers on leave from World War I operations at the peak of the pandemic. Our measures of income inequality come from newly digitized historical administrative records on Italian taxpayer incomes. We show that in the short-/medium-run (i.e., after five years), income inequality is higher in Italian municipalities more afflicted by the pandemic. The effect is mostly explained by a reduction in the share of income held by poorer people. Finally, we provide initial evidence that these differences in income inequality persist even after a century.

Valuing goods online and offline: the impact of Covid19

Valuing Goods Online and Offline

Diane Coyle and David Nguyen

This paper uses a survey representative of the UK online population to assess the willingness to accept loss of certain goods. We had conducted an initial survey in February, focusing on ‘free’ online goods and some potential substitutes and comparators. Consistent with other contingent valuation studies, consumers on average assigned valuations to many of these goods, particularly when benchmarked against revenue figures for the services. Our pilot studies, discussed in a forthcoming paper, also suggested that the actual valuations are not well anchored, but the methodology can give consistent rankings among goods. It is also a useful way to assess changes in valuations. Repeating the survey in May, during the UK, lockdown, we observed significant changes in the valuations of different goods and services, with some large differences by age and gender. In this sense the lockdown has acted as a natural experiment testing for the extent to which digital goods and physical goods are substitutes. These valuation changes may indicate which services are most valuable in a post-pandemic world where more activity takes place online. They also provide important, policy-relevant insights into distributional questions

Investor Rewards to Environmental Responsibility: Evidence from the COVID-19 Crisis

Investor Reward Environmental Responsibility

Alexandre Garel and Arthur Petit-Romec

The COVID-19 shock and its unprecedented financial consequences have brought about vast uncertainty concerning the future of climate actions. We study the cross-section of stock returns during the COVID-19 shock to explore investors’ views and expectations about environmental issues. The results show that firms with responsible strategies on environmental issues experience better stock returns. This effect is mainly driven by initiatives addressing climate change (e.g., reduction of environmental emissions and energy use), is more pronounced for firms with greater ownership by investors with long-term orientation and is not observed prior to the COVID-19 crisis. Overall, the results indicate that the COVID-19 shock has not distracted investors’ attention away from environmental issues but on the contrary led them to reward climate responsibility to a larger extent.

Cultural differences in COVID-19 spread and policy compliance: evidence from Switzerland

Despite the COVID-19 pandemic is currently spreading all over the world, we still observe dramatic variation between and, even within, countries in the speed of the infection, in the observed fatality rates and in the effectiveness of the containment measures put in place by most countries. This paper sheds light on the role of culture exploiting the large cultural variation between German and Latin (French and Italian) speaking regions in Switzerland. Consistently with the large difference in social contacts across generations between these two distinct cultural groups, it shows that the disease affected disproportionately elderly people only in Latin regions. Then, it shows that cultural differences are also associated with different levels of compliance with the containment measures put in place by the Swiss government. Mobility data by Google and Apple clearly show that people living in Latin-speaking regions started reducing their movements a week before the lockdown and then complied more strictly than their German counterparts with the policy. This differential compliance across language regions clearly affected the epidemic curves. Using an event study design, we reveal that Latin regions experiencing a faster decline in the growth rate of new cases, hospitalizations and deaths than their German counterpart.

Issue : 32

Spread of COVID-19 and Telework: Evidence from Japan

Teleworking: Japan is Different

This paper investigates telework in Japan during the spread of COVID-19. Using unique survey data, we show which occupations are suited to telework. Our results show that the use of telework increased from 6% in January to 10% in March and reached 17% in June 2020, although remarkably the level is still lower than that of other developed countries (e.g. 37% in Europe). Furthermore, we found that some occupations such as services with face-to-face communication are the most unsuitable for telework. They tended to suffer from negative impacts, such as largely reduced incomes and working hours.

Were Stay-at-Home Orders During Covid-19 Harmful for Business? – The Market’s View

Chen Chen, Sudipto Dasgupta, Thanh D. Huynh, Ying Xia

We study the market reactions following staggered lockdown events across U.S. states during Covid-19. We find that returns on firms located in lockdown states are higher following the lockdown. We interpret these market reactions as reflecting updated beliefs of market participants in the light of events that follow the lockdowns, such as compliance with stay-at-home orders. The effect is (a) only significant when the firm’s county has a high number of infections, (b) larger for firms in essential industries, and (c) larger for states with Democratic trifecta. While lockdown extension announcements are associated with negative market reactions, the reaction is still positive when the county’s number of infections is high. These findings suggest that the market perceives Non-Pharmaceutical Interventions, when effective, to be beneficial for businesses.

The Role of Corporate Culture in Bad Times: Evidence from the COVID-19 Pandemic

The Corporate Culture in Bad Times

Kai Li, Xing Liu, Feng Mai and Tengfei Zhang

After fitting a topic model to 79,597 COVID-19-related paragraphs in 11,183 conference calls over the period January to April 2020, we obtain measures of firm-level exposure and response to COVID-19 for 3,019 U.S. firms. We show that despite many different ways through which COVID-19 affects their operations, firms with a strong corporate culture do better in the midst of a pandemic than their peers without a strong culture. Moreover, firms with a strong culture are more likely to emphasize community engagement and adopt digital technology, and are no more likely to engage in cost cutting than their peers without a strong culture. To explore the channels through which culture makes firms resilient to the pandemic, we show that firms with a strong culture have higher sales per employee and lower cost of goods sold per employee during the first quarter of 2020. Our results provide support for the notion that corporate culture is an intangible asset designed to meet unforeseen contingencies as they arise (Kreps 1990).

Community-Level Social Capital and COVID-19 Infections and Fatality in the United States

Social Capital and Fatality

Francesca Borgonovi, Elodie Andrieu and S.V. Subramanian

The literature has long documented social capital as a key social determinant of health. However, because personal social interactions are implicated in the spread of viral infections, areas with high levels of social capital may have been especially at risk during the early phases of the COVID-19 pandemic when spread could not be halted by behavioral changes. We analyzed data from US counties on laboratory-confirmed COVID-19 cases and COVID-19 deaths and relate county level social capital with the number of days it took a county to reach 10 or 15 cases (from January 22) and with case fatality rate in the county between January 22 and May 8 2020. From January 22 on average it took 68 days for a county to reach at least 10 COVID-19 cases. Disease spread was faster the higher the social capital in a community. In counties with average levels of social capital 10 cases were identified by March 29, but in counties with social capital one SD above the average 10 cases were identified by March 26. The difference is equivalent to the difference estimated across two counties that differ in population density by 12,000 people per square mile. Other things being equal we estimate lower case fatality in higher social capital counties, with a reduction of between 0.2% and 0.4% points per SD difference in social capital. As governments lift mandatory social distancing, social capital may play a key role as a social determinant of health.

COVID, on-premise retail format, and product-market concentration

Mode of Shopping and Market Concentration

Avi Goldfarb, Sampsa Samila and Brian Silverman

The COVID-19 pandemic has led to considerable changes in retail shopping. There has been a significant increase in online shopping compared to on-premise, but due to social distancing and other safety regulations, there have also been significant changes in how on-premise retail is conducted. Prior studies have demonstrated significant effects on product-market concentration from the move to more online shopping, but here we focus on the effects on concentration due to the common change of moving from self-service stores to counter-service. Using a pre-COVID field experiment of a move in the opposite direction, our results suggest that an increase in counter-service shopping is likely to increase product-market concentration, potentially overwhelming the opposite change from the move to online shopping.

Epidemics: A Tale of Two Workers

When Workers are Different

This paper shows that the labour market opportunities available to an agent has a significant bearing on how that agent experiences the outbreak of an epidemic. I consider two types of labour (i) market labour that can only produce output in close physical proximity, and (ii) remote labour that can produce output at a distance. This paper develops a Two Agent New Keynesian model extended to include an epidemic bloc and dual feedback between economic decisions and the evolution of the epidemic. I show that an agent restricted to only supply market labour experiences higher death rates vis-à-vis their share of the population, and suffers larger declines in labour and consumption over the course of the epidemic. Post-epidemic, these agents are significantly worse off than their counterparts who can work from home and hence a more unequal society emerges. I then show that simple containment policies, while leading to larger losses in economic prosperity as measured by output loss, can significantly reduce death rates across the population, bring the death rates of the two groups closer together, and reduce the inequality that emerges post epidemic.

CULTURE: A tool for mental health resilience in COVID-19 times

Culture Consumption and Mental Health

What is the role of cultural goods and services during a universal pandemic crisis? This paper aims to demonstrate that culture is predominantly a public good for preserving mental health. We argue that the function of culture in human life has evolutionary roots in individual self-defence of mental health from uncertainty. The current paper uses primary data from a pilot survey conducted during the pandemic COVID-19 combined with Google trends data used to illustrate the effect of the pandemic on aggregate level. Our outcome variables are happiness during COVID-19 and propensity to help others in the periods before and after the start of the pandemic. The evidence from Probit and Heckman sample selection models suggests that people can obtain a mental-health shield for crisis periods through consumption of cultural goods and services in the past. Meanwhile, spontaneous cultural practices during times of uncertainty (such as singing with others) are associated with higher pro-social propensity to help other people. This shows that on micro-level culture is generally under-estimated in its potential role as a public good guaranteeing the psychological resilience in socio-economic shocks. On aggregate level, data about public spending on culture is associated with lower anxiety and less viral fear of death. Therefore, culture should be seriously explored as a tool for mental health prevention, which would be a primary justifications for much more extensive public spending on culture.

Online Consumption During the COVID-19 Crisis: Evidence from Japan

Online Consumption in Japan

Tsutomu Watanabe and Yuki Omori

The spread of novel coronavirus (COVID-19) infections has led to substantial changes in consumption patterns. While demand for services that involve face-to-face contact has decreased sharply, online consumption of goods and services, such as through e-commerce, is increasing. The aim of this study is to investigate whether online consumption will continue to increase even after COVID-19 subsides, using credit card transaction data. Online consumption requires upfront costs, which have been regarded as one of the factors inhibiting the diffusion of online consumption. However, if many consumers made such upfront investments due to the coronavirus pandemic, they would have no reason to return to offline consumption after the pandemic has ended, and high levels of online consumption should continue.

Our main findings are as follows. First, the main group responsible for the increase in online consumption are consumers who were already familiar with online consumption before the pandemic and purchased goods and service both online and offline. These consumers increased the share of online spending in their spending overall and/or stopped offline consumption completely and switched to online consumption only. Second, some consumers that had never used the internet for purchases before started to use the internet for their consumption activities due to COVID-19. However, the share of consumers making this switch was not very different from the trend before the crisis. Third, by age group, the switch to online consumption was more pronounced among youngsters than seniors. These findings suggest that it is not the case that during the pandemic a large number of consumers made the upfront investment necessary to switch to online consumption, so a certain portion of the increase in online consumption is likely to fall away again as COVID-19 subsides.

Issue : 31

Coronavirus infections and deaths by poverty status: Time trends and patterns

Juergen Jung, James Manley and Vinish Shrestha

We study the spread of SARS-CoV-2 infections and COVID-19 deaths by county poverty level in the US. We first document a U-shaped relationship between county groupings by poverty level and the intensity of coronavirus events defined as either coronavirus infections or COVID-19 related deaths. The U-shaped relationship prevails for counties with high population density while in counties with low population density, poorer counties exhibit much higher numbers in coronavirus cases, both in infections and deaths. Second, we investigate the patterns of coronavirus events following the announcements of state level stay-at-home mandates. We distinguish between four groups of states: First, Second, Third and Late Movers. Among First Movers—also the states with the largest share of infections—we observe a decrease in the average number of weekly new cases in rich and poor counties two weeks following the mandate announcement. The average numbers of cases per week in richer counties then quickly converges to the number reported in middle income counties, while the poorer counties show a much slower decrease in coronavirus cases. This pattern is accompanied by a dramatic reduction in mobility in all county groupings. Third, comparing counties in Second and Third Mover states, we show that a few days of delay in non-pharmaceutical interventions (NPIs) results in significantly larger numbers of coronavirus cases compared to states that introduce a mandate quicker. Finally, we use weather shocks as instruments to address endogeneity of the announce

Demand or Supply? Price Adjustment during the Covid-19 Pandemic

Price Adjustments in Germany

Almut Balleer, Sebastian Link, Manuel Menkhoff and Peter Zorn

We study planned price changes in German firm-level survey data to infer the relative importance of supply and demand during the Covid-19 pandemic. Supply and demand forces coexist, but demand deficiencies dominate in the short run. Quarter-on-quarter producer price inflation is predicted to decline by as much as 1.5 percentage points through August 2020. These results imply a role for demand stimulus policy to buffer the Covid-19 economic crisis.

Lockdown accounting

Charles Gottlieb, Jan Grobovšek, Markus Poschke and Fernando Saltiel

We measure the effect of lockdown policies on employment and GDP across countries using individual- and sector-level data. Employment effects depend on the ability to work from home, which ranges from about half of total employment in rich countries to around 35% in poor countries. This gap reflects differences in occupational composition, self-employment levels, and individual characteristics across countries. GDP effects of lockdown policies also depend on countries’ sectoral structure. Losses in poor countries are attenuated by their higher value-added share in essential sectors, notably agriculture. Overall, a realistic lockdown policy implies GDP losses of 20-25% on an annualized basis.

Understanding Socioeconomic Disparities in Travel Behavior during the COVID-19 Pandemic

Rebecca Brough, Matthew Freedman and David C. Phillips

We document the magnitudes of and mechanisms behind socioeconomic differences in travel behavior during the COVID-19 pandemic. We focus on King County, Washington, one of the first places in the U.S. where COVID-19 was detected. We leverage novel and rich administrative and survey data on travel volumes, modes, and preferences for different demographic groups. Large average declines in travel, and in public transit use in particular, due to the pandemic and related policy responses mask substantial heterogeneity across socioeconomic groups. Travel intensity declined considerably less among less-educated and lower-income individuals, even after accounting for mode substitution and variation across neighborhoods in the impacts of public transit service reductions. The relative inability of less-educated and lower-income individuals to cease commuting explains at least half of the difference in travel responses across groups.

Mobility reductions in response to Covid-19 in India: Comparing voluntary, state and central responses

Mobility Responses in Federal India

Himangshu Kumar and Manikantha Nataraj

In response to the surge of Covid-19 cases nations focused on reducing mobility to contain transmission of the virus. This change in mobility patterns can be achieved through two channels; (1) voluntary reductions in mobility due to rising public awareness and (2) explicit social distancing policies imposed by governments. In India, two weeks prior to the national lockdown imposed by the central government on 24th March, state governments had started independently enacting social distancing measures. However, there is little empirical evidence on the efficacy of the initial state-level restrictions, in comparison to the national lockdown. Even fewer studies have commented on the role of public awareness in reducing mobility. This paper contributes by comparing the impact of two policy events on mobility: the first Covid-19 social distancing policy imposed by each state and the imposition of the lockdown. We further explore how the news of the first reported case in a state impacted public awareness. The above effects were estimated by using an event study Difference-in-Differences model with time-varying treatment. Results show that while people did seek information in response to the perception that Covid-19 had ‘reached’ their state, they did not reduce out-of-home mobility significantly. However, starting from the second day after the lockdown, time spent in residence increased significantly for each day by 3-4% for the next 21 days. This is in sharp contrast to the insignificant effect of states’ own first policy on mobility. The intervention of the central government had a much larger and persistent impact on mobility than the initial state-level policies, indicating that a unified, coordinated policy intervention is more effective than isolated, subnational efforts.

Optimal Unemployment Benefits in the Pandemic

Optimal Unemployment Benefits

Kurt Mitman and Stanislav Rabinovich

How should unemployment benefits vary in response to the economic crisis induced by the COVID-19 pandemic? We answer this question by computing the optimal unem- ployment insurance response to the COVID-induced recession. We compare the optimal policy to the provisions under the CARES Act-which substantially expanded unemployment insurance and sparked an ongoing debate over further increases-and several alternative scenarios. We find that it is optimal first to raise unemployment benefits but then to begin lowering them as the economy starts to reopen – despite unemployment remaining high. We also find that the $600 UI supplement payment implemented under CARES was close to the optimal policy. Extending this UI supplement for another six months would hamper the recovery and reduce welfare. On the other hand, a UI extension combined with a re-employment bonus would further increase welfare compared to CARES alone, with only minimal effects on unemployment.

Issue : 30

Power laws in superspreading events: Evidence from coronavirus outbreaks and implications for SIR models

Masao Fukui and Chishio Furukawa

While they are rare, superspreading events (SSEs), wherein a few primary cases infect an extraordinarily large number of secondary cases, are recognized as a prominent determinant of aggregate infection rates (R0). Existing stochastic SIR models incorporate SSEs by fitting distributions with thin tails, or finite variance, and therefore predicting almost deterministic epidemiological outcomes in large populations. This paper documents evidence from recent coronavirus outbreaks, including SARS, MERS, and COVID-19, that SSEs follow a power law distribution with fat tails, or infinite variance. We then extend an otherwise standard SIR model with the fat-tailed power law distributions, and show that idiosyncratic uncertainties in SSEs will lead to large aggregate uncertainties in infection dynamics, even with large populations. That is, the timing and magnitude of outbreaks will be unpredictable. While such uncertainties have social costs, we also find that they on average decrease the herd immunity thresholds and the cumulative infections because per-period infection rates have decreasing marginal effects. Our findings have implications for social distancing interventions: targeting SSEs reduces not only the average rate of infection (R0) but also its uncertainty. To understand this effect, and to improve inference of the average reproduction numbers under fat tails, estimating the tail distribution of SSEs is vital.

Mass Gathering Contributed to Early COVID-19 Spread: Evidence from US Sports

Alexander Ahammer, Martin Halla and Mario Lackner

Social distancing is important to slow the community spread of infectious disease, but it creates enormous economic and social cost. It is thus important to quantify the benefits of different measures. We study the ban of mass gatherings, an intervention with comparably low cost. We exploit exogenous spatial and temporal variation in NBA and NHL games, which arise due to the leagues’ predetermined schedules, and the suspension of the 2019-20 seasons. This allows us to estimate the impact of these mass gatherings on the spread of COVID-19 in affected US counties. One additional mass gathering increased the cumulative number of COVID-19 deaths in affected counties by 13 percent.

COVID-19, Social Distancing, Remote Work and Transport Choice

Commuting or Working From Home

Frank Crowley, Hannah Daly, Justin Doran and Geraldine Ryan

Since late 2019, Covid-19 has devastated the global economy, with indirect implications for the environment. As governments’ prioritized health and implemented measures such as isolation, the closure of non-essential businesses and social distancing, many workers lost their jobs, were furloughed, or started working from home. Consequently, the world of work has drastically transformed and this period is likely to have major implications for mobility, transportation and the environment. We have estimated the variability of people to engage in remote work and social distancing using O*NET data and Irish Census data. We show that while those who commute by car have a relatively high potential for remote work, they are less likely to be able to engage in social distancing in their workplace. While this may be negative for employment prospects in the short run, this dynamic has the potential for positive environmental implications in the short and long run.

Macroeconomics of Epidemics: Interstate Heterogeneity in Brazil

Interstate Heterogeneity in Brazil

Luan Borelli and Geraldo Sandoval Góes

We apply the SIR-macro model proposed by Eichenbaum et al. (2020) in its complete version to comparatively study the interaction between economic decisions and COVID-19 epidemics in five different Brazilian states: São Paulo (SP), Amazonas (AM), Ceará (CE), Rio de Janeiro (RJ) and Pernambuco (PE). Our objective is to analyze qualitatively how the main intrinsic differences of each of these states can affect the epidemic dynamics and its consequences. For this purpose, we compute and compare the model for each of the states, both in competitive equilibrium and under optimal containment policy adoption, and analyze the implications of optimal policy adoption. We conclude that the intrinsic characteristics of the five different states imply relevant differences in the general dynamics of the epidemic, in the optimal containment policies, in the effect of the adoption of these policies and the severity of the economic recessions. Our study can serve as an alert for policymakers of countries of huge dimensions and interstate heterogeneity as Brazil for the necessity of discriminating policies by states or regions instead of adopting a single unified policy for the whole country.

The COVID19-Pandemic in the EU: Macroeconomic Transmission and Economic Policy Response

Philipp Pfeiffer, Werner Roeger and Jan in ’t Veld

This paper uses a macroeconomic model to analyse the transmission of the COVID19-pandemic and its associated lockdown and quantify the stabilising effects of the economic policy response. Our simulations identify firm liquidity problems as crucial for shock propagation and amplification. We then quantify the effects of short-term work allowances and liquidity guarantees – central policy strategies in the European Union. The measures reduce the output loss of COVID19 and its associated lockdown by about one fourth. However, they cannot prevent a sharp but temporary decline in production.

Issue : 29

Does Policy Communication during COVID Work?

Olivier Coibion, Yuriy Gorodnichenko and Michael Weber

Using a large-scale survey of U.S. households during the Covid-19 pandemic, we study how new information about fiscal and monetary policy responses to the crisis affects households’ expectations. We provide random subsets of participants in the Nielsen Homescan panel with different combinations of information about the severity of the pandemic, recent actions by the Federal Reserve, stimulus measures, as well as recommendations from health officials. This experiment allows us to assess to what extent these policy announcements alter the beliefs and spending plans of households. In short, they do not, contrary to the powerful effects they have in standard macroeconomic models.

Runs and Interventions in the Time of Covid-19:Evidence from Money Funds

Lei Li, Yi Li, Marco Macchiavelli and Xing (Alex) Zhou

Liquidity restrictions on investors, like the redemption gates and liquidity fees introduced in the 2016 money market fund (MMF) reform, are meant to improve financial stability during crisis. However, we find evidence that they may have exacerbated the run on prime MMFs during the Covid-19 crisis. Severe outflows from prime MMFs amid frozen short-term funding markets led the Federal Reserve to intervene with the Money Market Mutual Fund Liquidity Facility (MMLF). By providing “liquidity of last resort,” the MMLF successfully stopped the run on prime MMFs and gradually stabilized conditions in short-term funding markets.

Bringing back the jobs lost to Covid-19: the role of fiscal policy

Christian Bredemeier, Falko Juessen, Roland Winkler

Covid-19 induced job losses occurred predominantly in industries with intensive worker-client interaction as well as in pink-collar and blue-collar occupations. We study the ability of fiscal policy to stabilize employment by occupation and industry during the Covid-19 crisis. We use a multi-sector, multi-occupation macroeconomic model and investigate different fiscal policy instruments that help the economy recover faster. We show that fiscal stimuli foster job growth for hard-hit pink-collar workers, whereas stimulating blue-collar job creation is more challenging. A cut in labor taxes performs best in stabilizing total employment and the employment composition.

The Great Lockdown and criminal activity – Evidence from Bihar, India

Criminality and Lockdowns

The COVID-19 pandemic has resulted in over 2 billion people in the world affected by lockdowns. This has significant socioeconomic implications, especially in areas such as crime, where police resources are diverted from crime prevention towards enforcing lockdowns. Also, mobility restrictions imposed by lockdowns might make it harder for criminals to find victims. The net effect of these opposite forces is unknown. This study analyzes the effect of lockdowns on criminal activity in the state of Bihar, India. A sharp regression discontinuity design is implemented harnessing the sudden introduction of a state-wide lockdown and novel high-frequency criminal case data. The results show that lockdown decreases aggregate crime by 44 percent. Negative large effects are observed in diverse types of crimes such as murder (61 percent), theft (63 percent), and crimes against women (64 percent), among others. This seems to be driven by the higher search costs faced by criminals. Finally, by exploiting geographic variation in terms of lockdowns’ severity across districts, this study shows that relaxing lockdowns’ initial restrictions increase crime, but the increment is lower in less restrictive lockdowns than in restrictive ones. While economically-motivated crimes increased, violent crimes were not impacted. This suggests that the economic downturn produced by the lockdown might be driving these effects. Policy recommendations are discussed.

Twin Peaks: Covid-19 and the Labor Market

Jake Bradley, Alessandro Ruggieri and Adam H. Spencer

This paper develops a choice-theoretic equilibrium model of the labor market in the presence of a pandemic. It includes heterogeneity in productivity, age and the ability to work at home. Worker and firm behavior changes in the presence of the virus, which itself has equilibrium consequences for the infection rate. The model is calibrated to the UK and counterfactual lockdown measures are evaluated. We find a different response in both the evolution of the virus and the labor market with different degrees of severity of lockdown. We use these insights to make a labor market policy prescription to be used in conjunction with lockdown measures. Finally we find that, while the pandemic and ensuing policies impact the majority of the population negatively, consistent with recent studies, the costs are not borne equally. While the old face the highest health risks, it is the young low wage workers who suffer the most income and employment risk.

Issue : 28

The Early Impact of COVID-19 on Local Commerce: Changes in Spend Across Neighborhoods and Online

Early Impact on Consumption

Lindsay E. Relihan, Marvin M. Ward Jr., Chris W. Wheat and Diana Farrell

We document a number of striking features about the initial impact of the pandemic on local commerce across 16 US cities. There are two novel contributions from this analysis: exploration of neighborhood-level effects and shifts between offline and online purchasing channels. In our analysis we use approximately 450 million credit card transactions per month from a rolling sample of 11 million anonymized customers between October 2019 and March 2020. Across the 16 cities we profile, consumers decreased spend on the set of goods and services we define as “local commerce” by 12.8% between March 2019 and March 2020. Growth in all 16 cities was negative. Consumers shifted a substantial share of local commerce spend online, such that year over-year growth in online spend was small, but positive, at 1.5%. With respect to grocery and pharmacy purchases, online spend grew at least three times as fast as offline spend. Overall spend declines were uniform across neighborhoods of differing median household income, though lower-income neighborhoods experienced the highest proportion of extreme negative declines. We also find evidence that many low-income neighborhoods are increasing spend on online grocery slower than others, but increasing their use of online restaurants the fastest. Consumers in low-income neighborhoods also tend to live farther from the grocery stores at which they shop. Compared to their counterparts in higher-income neighborhoods, consumers in low-income neighborhoods have not been more likely to shop at grocery stores closer to where they live since the onset of the pandemic.

The stock market is not the economy? Insights from the Covid-19 crisis

Why are Stock Markets Disconnected?

Gunther Capelle-Blancard, Adrien Desroziers

During the COVID-19 crisis, while the world economy suffered the worst crisis since the Great Depression, the reactions of stock markets have raised concerns. Several economists (including some Nobel laureates) have seen these reactions as evidence that stock markets are not fully efficient, while others have emphasized the difficulty of assessing the dramatic flow of information about the pandemic and its economic consequences. In this paper, we assess how stock markets have integrated public information about the COVID-19, the subsequent lockdowns and the policy reactions. Although the COVID-19 shock has been global, not all countries have been impacted in the same way, and they have not reacted in the same way. We take advantage of this strong heterogeneity. We consider a panel of 74 countries with daily information about the health and economic crisis, from January to April 2020. Stock market reaction can be summarized as follows. 1) Stock markets initially ignored the pandemic (until Feb. 21), before reacted strongly to the growing number of infected people (Feb. 23 to Mar. 20), while volatility surged and concerns about the pandemic arose; following the intervention of central banks (Mar. 23 to Apr. 30), however, shareholders no longer seemed troubled by news of the health crisis, as prices rebound all around the world. 2) Country-specific characteristics appear to have had no influence on stock market response. 3) Investors were sensitive to the number of COVID-19 cases in neighbouring and wealthy countries. 4) Credit facilities and government guarantees, lower policy interest rates, and lockdown measures mitigated the decline in domestic stock prices. Overall, these results suggest that stock markets have been less sensitive to each country’ macroeconomic fundamentals prior the crisis, than to their short-term reaction during the crisis. However, our selected variables explain only a small part of the stock market variations, so it is hard to deny that the link between stock price movements and fundamentals have been anything other than loose.

Women’s Work, Housework and Childcare, before and during COVID-19

Women’s Work Before and During Covid-19

Daniela Del Boca, Noemi Oggero, Paola Profeta, Maria Cristina Rossi

Evidence from past economic crises indicates that recessions often affect men’s and women’s employment differently, with a greater impact on male-dominated sectors. The current COVID-19 crisis presents novel characteristics that have affected economic, health and social phenomena over wide swaths of the economy. Social distancing measures to combat the spread of the virus, such as working from home and school closures, have placed an additional tremendous burden on families. Using new survey data collected in April 2020 from a representative sample of Italian women, we analyse jointly the effect of COVID-19 on the working arrangements, housework and childcare of couples where both partners work. Our results show that most of the additional workload associated to COVID-19 falls on women while childcare activities are more equally shared within the couple than housework activities. According to our empirical estimates, changes to the amount of housework done by women during the emergency do not seem to depend on their partners’ working arrangements. With the exception of those continuing to work at their usual place of work, all of the women surveyed spend more time on housework than before. In contrast, the amount of time men devote to housework does depend on their partners’ working arrangements: men whose partners continue to work at their usual workplace spend more time on housework than before. The link between time devoted to childcare and working arrangements is more symmetric, with both women and men spending less time with their children if they continue to work away from home. For home schooling, too, parents who continue to go to their usual workplace after the lockdown are less likely to spend greater amounts of time with their children than before. Finally, analysis of work-life balance satisfaction shows that working women with children aged 0-5 are those who say they find balancing work and family more difficult during COVID-19. The work-life balance is especially difficult to achieve for those with partners who continue to work outside the home during the emergency.

The mental health effects of the first two months of lockdown and social distancing during the Covid-19 pandemic in the UK

Using longitudinal microdata for the UK over the period 2009-2020 we control for pre-existing previous trends in mental health in order to isolate and quantify the effects of the Covid-19 pandemic. Mental health in the UK worsened by 8.1% on average as a result of the pandemic and by much more for young adults and for women which are groups that already had lower levels of mental health before Covid-19. Hence inequalities in mental health have been increased by the pandemic. Even larger effects are observed for measures of mental health that capture the number of problems reported or the fraction of the population reporting any frequent or severe problems, which more than doubled.

What and how did people buy during the Great Lockdown? Evidence from electronic payments

Consumption Under Lockdown

Bruno P. Carvalho, Susana Peralta and João Pereira dos Santos

This paper uses novel and comprehensive data on electronic payments from SIBS, the main provider of point of sale terminals and on-line payments in Portugal, to study the impact of the Great Lockdown on purchases. The data aggregates all individual transactions into monthly observations, by municipality and sector, between 2018 and 2020. We employ a difference-in-differences event study that relies on the assumption that the monthly evolution of purchases in the first four months of 2020 would be parallel to that of the two previous years. We identify a massive causal impact on overall purchases, from a baseline year-on-year monthly growth rate of 10% to a decrease of 45%. The sign and magnitude of the impact varies considerably across sectors. Purchases of essential goods such as supermarkets and groceries increase mildly, contrasting with severe contractions in sectors that were closed by government order or depend heavily on tourism, including the leisure industry and restaurants. We find suggestive evidence of initial stockpiling of goods, postponing of essential expenditures, and rapid recovery of purchases in tech and entertainment, possibly to adapt to the confinement. Transactions with foreign-owned cards cause an even greater negative contraction. We disentangle the total effect into the intensive margin of the average transaction and the extensive margin of the number of transactions. Buyers adjust their shopping strategies in rational ways to minimize public health risks: they go less often to supermarkets and buy more each time, and visit local groceries more.

Promoting social distancing in a pandemic: Beyond the good intentions

Reminding People to Socially Distance

Paolo Falco and Sarah Zaccagni

Reminders to promote social distancing have been ubiquitous throughout the COVID-19 crisis, but little is known about their effectiveness. Existing studies find positive impacts on intentions to comply, but no evidence exists of actual behavioural change. We conduct a randomised controlled trial with a representative sample of Danish residents, who receive different versions of a reminder to stay home as much as possible at the height of the crisis. We measure impacts on both intentions to comply and on actions in the following days (i.e., whether subjects report having stayed home in a follow-up survey). We find that the reminder significantly increases people’s intentions to stay home when it emphasises the consequences of non-compliance for the respondent or his/her family, while it has no impact when the emphasis is on other people or the country as a whole. Changes in intentions, however, translate into weaker changes in actions that are not statistically significant, despite potential concerns of self-reported compliance being overstated. This is consistent with the existence of important intention-to-action gaps. Only people who are in relatively poor health are significantly more likely to stay home after receiving the reminder with an emphasis on personal and family risks. This shows that while reminders may be useful to protect groups at risk by increasing their own compliance with social distancing, such a tool has no significant impact on the behaviour of those who face limited personal risks but could spread the disease.

Issue : 27

Preserving job matches during the COVID-19 pandemic: Firm-level evidence on the role of government aid

Morten Bennedsen, Birthe Larsen, Ian Schmutte and Daniela Scur

We analyze the impact of the COVID-19 pandemic and government policies on firms’ aid take-up, layoff and furlough decisions using newly collected survey data for 10,642 small, medium and large Danish firms. This is the first representative sample of firms reporting the pandemic’s impact on their revenue and labor choices, showing a steep decline in revenue and a strong reported effect of labor aid take-up on lower job separations. First, we document that relative to a normal year, a quarter more firms have experienced revenue declines exceeding 35 percent. Second, we characterize the firms that took up aid and the type of aid package they chose – labor-based aid, fixed cost support or fiscal-based tax delays. Third, we compare their actual layoff and furlough decisions with reported counterfactual decisions in the absence of aid.

Corporate Bond Liquidity During the COVID-19 Crisis

Mahyar Kargar, Benjamin Lester, David Lindsay, Shuo Liu, Pierre-Olivier Weill and Diego Zúñiga

We study liquidity conditions in the corporate bond market since the onset of the COVID-19 pandemic. We find that in mid-March 2020, as selling pressure surged, dealers were wary of accumulating inventory on their balance sheets, perhaps out of concern for violating regulatory requirements. As a result, the cost to investors of trading immediately with a dealer surged. A portion of transactions migrated to a slower, less costly process wherein dealers arranged for trades directly between customers without using their own balance sheet space. Interventions by the Federal Reserve appear to have relaxed balance sheet constraints: soon after they were announced, dealers began absorbing inventory, bid-ask spreads declined, and market liquidity started to improve. Interestingly, liquidity conditions improved for bonds that were eligible for the Fed’s lending/purchase programs and for bonds that were ineligible. Hence, by allowing dealers to unload certain assets from their balance sheet, the Fed’s interventions may have helped dealers to better intermediate a wide variety of assets, including those not directly targeted.

The Challenge of Protecting Informal Households during the COVID-19 Pandemic: Evidence from Latin America

Protecting Informal Workers in Latin America

Matias Busso, Juanita Camacho, Julián Messina, and Guadalupe Montenegro

Latin American countries introduced rapid emergency measures to sustain the income of informal workers and their families during shelter-in-place orders to contain COVID-19. The effectiveness of these measures is limited. The coverage and replacement rates of usual labor income are high among the first quintile of the population but fairly low in the second and third quintiles, where a substantial fraction of households are informal and have limited ability to telework. If governments plan to extend lockdown measures or reintroduce them in the future, they might need to consider broader income transfers for the lower-middle class.

Face Masks Considerably Reduce Covid-19 Cases in Germany: A synthetic control method approach

Timo Mitze, Reinhold Kosfeld, Johannes Rode and Klaus Wälde

We use the synthetic control method to analyze the effect of face masks on the spread of Covid-19 in Germany. Our identification approach exploits regional variation in the point in time when face masks became compulsory. Depending on the region we analyse, we find that face masks reduced the cumulative number of registered Covid-19 cases between 2.3% and 13% over a period of 10 days after they became compulsory. Assessing the credibility of the various estimates, we conclude that face masks reduce the daily growth rate of reported infections by around 40%.

The Macroeconomics of Pandemics in Developing Countries: an Application to Uganda

Containment Policies in Emerging Countries

Tillmann von Carnap, Ingvild Almås, Tessa Bold, Selene Ghisolfi and Justin Sandefur

How do optimal policies to control the spread of SARS-CoV-2 vary across countries? In an influential recent paper, Eichenbaum, Rebelo, and Trabandt (2020) incorporate economic behavior into a standard epidemiological model calibrated to the United States, finding that spontaneous social distancing will fall short of the social optimum without policy intervention. In this paper, we apply and extend their model to explore how optimal policy varies across contexts depending on demography, comorbidities, and health system strength — which affect the infection fatality rate — as well as poverty — which affects agents’ willingness to forego current consumption to reduce disease risk. Calibrating the model to Uganda, we calculate an optimal path for a containment policy equivalent to a 4% consumption tax over one year (compared to a 40% tax in the U.S.), which reduces predicted mortality by roughly 5.5% (compared to 28.2% in the U.S.). Notably, the normative predictions of the model constitute poor positive predictions. Actual containment policies in Uganda and many other developing countries with high poverty and favorable demographics have been relatively severe, and have been met with broad public approval despite high economic costs. Within the model, widespread overestimation of the risk of contracting and dying from the disease provides one possible explanation for this pattern.

Optimal COVID-19 quarantine and testing policies

Quarantine and Testing Policies

Facundo Piguillem and Liyan Shi

Many countries are taking measures stopping productive activities to slow down the spread of COVID-19. At times these measures have been criticized as being excessive and too costly. In this paper we make an attempt to understand the optimal response to an infectious disease. We find that the observed policies are very close to a simple welfare maximization problem of a planner who tries to stop the diffusion of the disease. These extreme measures seem optimal in spite of the high output cost that it may have in the short run, and for various curvatures of the welfare function. The desire for cost smoothing makes more likely that either mitigation or no intervention strategies are optimal, but it does not greatly affect the optimal duration and intensity of the quarantines. We then study the possibility of either complementing or substituting the quarantine policy with random testing. We find that testing is a very close substitute of quarantine and can substantially reduce the need for indiscriminate quarantines.

Issue : 26

Leading the fight against the pandemic: Does gender ‘really’ matter?

Women Leaders Do It Better

Supriya Garikipati and Uma Kambhampati

Since the start of the ongoing coronavirus pandemic, the relationship between national female leaders and their effectiveness in handling the COVID-crisis has received a lot of media attention. In this paper we scrutinise this association more systematically. We ask if there is a significant and systematic difference by gender of the national leader in the number of COVID-cases and deaths in the first quarter of the pandemic. We also examine differences in policy responses by male vs. female leaders as plausible explanations for the differences in outcomes. Using a constructed dataset for 194 countries, a variety of socio-demographic variables are used to match nearest neighbours. Our findings show that COVID-outcomes are systematically better in countries led by women and, to some extent, this may be explained by the proactive and coordinated policy responses adopted by them. We use insights from behavioural studies and leadership literature to speculate on the sources of these differences, as well as on their implications. Our hope is that this article will serve as a starting point to illuminate the discussion on the influence of national leaders in explaining the differences in country COVID-outcomes.

Lockdowns and COVID-19 deaths in Scandinavia

Sweden vs Denmark and Norway

Martin J. Conyon, Lerong He and Steen Thomsen

We estimate the impact of non-pharmacological interventions (NPIs) on COVID-19 deaths in Scandinavia. We exploit policy variation between Denmark and Norway on the one hand and Sweden on the other. The former deployed relatively more stringent lockdowns, the latter did not. Our difference-in-differences models show that stricter lockdown policies are associated with fewer COVID-19 deaths.

Latent social distancing: Identification, causes and consequences

M. Aykut Attar and Ayça Tekin-Koru

This paper derives a Model-Inferred DIStancing (MIDIS) measure using an extended version of the Susceptible-Exposed-Infected-Recovered-Deceased (SEIRD) framework. The paper argues that, when a disease has an incubation period, explicitly accounting for the exposed compartment is necessary in this class of epidemiological models. An important advantage of the proposed identification strategy lies in its ease to put into practice by other researchers because it employs a relatively simple model and readily available data. When MIDIS is taken to data, results exhibit cross-country and over-time heterogeneity in social distancing during the COVID-19 pandemic. Furthermore, MIDIS is highly correlated with the mobility data, and it embeds both governmental and behavioral responses to the COVID-19 pandemic. Finally, as an application, the paper uses MIDIS to explain output losses experienced during the pandemic, and there exists a robust positive correlation between the two|with sizable economic effects.

The Covid-19 crisis response helps the poor: The distributional and budgetary consequences of the UK lockdown

The Lockdown is Pro-poor in the UK

Patryk Bronka, Diego Collado and Matteo Richiardi

We nowcast the economic effects of the Covid-19 pandemic and related lockdown measures in the UK and then analyse the distributional and budgetary effects of the estimated individual income shocks, distinguishing between the effects of automatic stabilisers and those of the emergency policy responses. Under conservative assumptions about the exit strategy and recovery phase, we predict that the rescue package will increase the cost of the crisis for the public budget by an additional £26 billion, totalling over £60 billion. However, it will allow to contain the reduction in the average household disposable income to 1 percentage point, and will reduce poverty rate by 1.1 percentage points (at a constant poverty line), with respect to the pre-Covid situation. We also show that this progressive effect is due to the increased generosity of Universal Credit, which accounts for only 20% of the cost of the rescue package.

Pandemic Catch-22: How effective are mobility restrictions in halting the spread of COVID-19 in developing countries?

Mobility Restrictions in Developing Countries

Tushar Bharati and Adnan M. S. Fakir

Countries across the world responded to the COVID-19 pandemic with what might well be the set of biggest state-led mobility and activity restrictions in the history of mankind. But how effective were these measures across countries? Compared to multiple recent studies that document an association between such restrictions and the control of the contagion, we use an instrumental variable approach to estimate the causal effect of these restrictions on mobility, and the growth rate of confirmed cases and deaths attributed to COVID-19. Using the level of stringency in the rest of the world to predict the level of stringency of the restriction measures in a country, we show while stricter contemporaneous measures affected mobility, stringency in seven to fourteen days mattered for containing the contagion. Heterogeneity analysis reveal that even though the restrictions reduced mobility more in relatively less-developed countries, the causal effect of a reduction in mobility was higher in more developed countries. We propose several explanations. Our results highlight the need to complement mobility and activity restrictions with other health and information measures, especially in less-developed countries, to combat the COVID-19 pandemic effectively.

Social capital and the spread of Covid-19: Insights from European countries

Alina Kristin Bartscher, Sebastian Seitz, Sebastian Siegloch, Michaela Slotwinski and Nils Wehrhöfer

We explore the role of social capital in the spread of the recent Covid-19 pandemic in independent analyses for Austria, Germany, Italy, the Netherlands, Sweden, Switzerland and the UK. We exploit within country variation in social capital and Covid-19 cases to show that
high-social-capital areas accumulated between 12% and 32% fewer Covid-19 cases per capita from mid-March until mid-May. Using Italy as a case study, we find that high-social-capital areas exhibit lower excess mortality and a decline in mobility. Our results have important implications for the design of local containment policies in future waves of the pandemic.

Issue : 25

Six Degrees of Separation for COVID-19: The External Costs and Benefits of Extended Distancing for Different Social Groups

Different Measures for Different People

After an initial period of crisis management, governments must consider what measures against the spread of the novel coronavirus to keep in place until a vaccine or reliable therapy arrives. Informing public policy requires understanding not only disease dynamics and social distancing effectiveness, but also economic features to evaluate the costs and benefits of different actions. This study adapts a workhorse epidemiological model to account for both age-dependent risks and job-dependent social distancing measures and costs. Simulations calculate the costs of six different degrees of restrictions, with sensitivity analysis to several uncertain underlying disease parameters. A novel contribution is contrasting private cost-benefit calculations with the external costs and benefits to society as a whole. The least-cost policy likely involves continued isolation of all who can work or study at home, while other workers practice strong social distancing. For the US, this strategy saves on the order of $10 trillion as compared to simply isolating vulnerable individuals. The benefits of requiring other workers to stay at home only outweigh the wage losses if social distancing measures are insufficiently effective. Immunity is a critical parameter and its absence dramatically increases the costs of weak actions. Further research into the nonmonetary costs of isolation would be valuable. The value of the risks a single person can impose on the rest of society by not staying at home can be substantial, generally increases as restrictions loosen, and should be weighed against the private benefits of returning to circulation.

The Covid-19 Shock and equity shortfall: Firm-level evidence from Italy

Equity Shortfall in Italy

Elena Carletti, Tommaso Oliviero, Marco Pagano, Loriana Pelizzon and Marti G. Subrahmanyam

This paper estimates the drop in profits and the equity shortfall triggered by the Covid-19 shock and the subsequent lockdown, using a representative sample of 80,972 Italian firms. We find that a 3-month lockdown entails an aggregate yearly drop in profits of €170 billion, with an implied equity erosion of €117 billion for the whole sample, and €31 billion for firms that became distressed, i.e., ended up with negative book value after the shock. As a consequence of these losses, about 17% of the sample firms, whose employees account for 8.8% of total employment in the sample (about 800,000 employees), become distressed. Small and mediumsized enterprises (SMEs) are affected disproportionately, with 18.1% of small firms, and 14.3% of medium-sized ones becoming distressed, against 6.4% of large firms. The equity shortfall and the extent of distress are concentrated in the Manufacturing and Wholesale Trading sectors and in the North of Italy. Since many firms predicted to become distressed due to the shock had fragile balance sheets even prior to the Covid-19 shock, restoring their equity to their pre-crisis levels may not suffice to ensure their long-term solvency.

Mortality containment vs. Economics Opening: Optimal policies in a SEIARD model

Andrea Aspri, Elena Beretta, Alberto Gandolfi, Etienne Wasmer

We adapt a SEIRD differential model with asymptomatic population and Covid deaths, which we call SEAIRD, to simulate the evolution of COVID-19, and add a control function affecting both the diffusion of the virus and GDP, featuring all direct and indirect containment policies; to model feasibility, the control is assumed to be a piece-wise linear function satisfying additional constraints. We describe the joint dynamics of infection and the economy and discuss the trade-off between production and fatalities. In particular, we carefully study the conditions for the existence of the optimal policy response and its uniqueness. Uniqueness crucially depends on the marginal rate of substitution between the statistical value of a human life and GDP; we show an example with a phase transition: above a certain threshold, there is a unique optimal containment policy; below the threshold, it is optimal to abstain from any containment; and at the threshold itself there are two optimal policies. We then explore and evaluate various profiles of various control policies dependent on a small number of parameters.

Policies to support firms in a lockdown: A pecking order

Anatoli Segura and Alonso Villacorta

We analyze government interventions to support firms facing liquidity needs during a lockdown in a competitive model of financial intermediation. Banks and firms have legacy balance sheets at the lockdown date. Firms’ liquidity needs can be financed by banks that are subject to risk-weighted capital requirements and funded with insured deposits. An increase in firms’ overall claims to external investors aggravates moral hazard problems and reduces expected output. The government can support firms directly through transfers or indirectly through guarantees to new bank loans or reductions in the capital requirement. As a result of the diversification of idiosyncratic firm risks conducted by banks, a reduction in the capital requirement only creates costs for the government following negative aggregate shocks that lead to banks’ failure. A pecking order on the government policies that maximize output as a function of the government’s budget is derived. For low budget, a reduction in capital requirements is optimal and is fully transmitted to firms through increases in banks’ leverage. For medium budget, the capital requirement reduction becomes slack and needs be combined with transfers to firms or loan guarantees. For high budget, transfers are strictly necessary.

Contagion and Conflict: Evidence from India

The health, economic and security impacts of the Covid-19 pandemic are playing out in volatile and potentially catastrophic ways, especially in conflict-affected states. The disease arrived in India during a period of heightened public protests, riots and religious polarization. In this paper, I document early evidence of the causal impact of Covid-19 proliferation on conflict risks across Indian districts. I use text-mining of conflict event descriptions to define two new measures of religious and pandemic-related conflict in addition to the standard measures of real-time conflict events provided by The Armed Conflict Location & Event Data Project (ACLED). Event study analysis indicates a sustained decline in conflict after the first Covid-19 case is reported, driven by a decrease in religious conflict and public protests. However, I also document a countervailing increase in the probability of Covid-19 related conflict. Poor districts and districts with low health infrastructure in particular demonstrate an increase in riots. These real-time findings are of first-order importance for policymakers and public administrators straddling a narrowing stringency corridor between maintaining public health and tolerance of containment policies.

Aggregate Demand and Aggregate Supply Effects of COVID-19: A Real-time Analysis

Geert Bekaert, Eric Engstrom, Andrey Ermolov

We extract aggregate demand and supply shocks for the US economy from real-time survey data on inflation and real GDP growth using a novel identification scheme. Our approach exploits non-Gaussian features of macroeconomic forecast revisions and imposes minimal theoretical assumptions. After verifying that our results for US post-war business cycle fluctuations are largely in line with the prevailing consensus, we proceed to study output and price fluctuations during COVID-19. We attribute two thirds of the decline in 2020:Q1 GDP to a negative shock to aggregate demand. In contrast, regarding the staggeringly large decline in GDP in 2020:Q2, we estimate two thirds of this shock was due to a reduction in aggregate supply. Statistical analysis suggests a slow recovery due to persistent effects of the supply shock, but surveys suggest a somewhat faster rebound with a recovery in aggregate supply leading the way.

The impact of communication on preferences for public policies. Evidence from a field experiment on the Covid19 health-wealth trade-off

Communication on Health vs Wealth

Vincenzo Carrieri, Maria De Paola, Francesca Gioia

How do people balance health/money concerns during a pandemic? And, how does the communication over this trade-off affect individual preferences? We address these questions using a hypothetical field experiment (randomized controlled trial, RCT) involving around 2000 students enrolled in a big university in the south of Italy. We compare four different framings in order to investigate whether a positive and more paternalistic framing which focuses on protective strategies (“safeguard”) induces more conservative preferences than a more “crude” framing which focuses on potential losses (“costs”). We find that paternalistic framing on the health side induces individuals to give greater relevance to the health dimension. The effect is sizeable and stronger among females and altruistic individuals. Moreover, irrespective of the framing, we find a large heterogeneity in student’s preferences over the trade-off. Economics students and students who have directly experienced the economic impact of the pandemic are found to favor polices that take in greater account the economic side of the tradeoff.

Wage inequality and poverty effects of lockdown and social distancing in Europe

Wage Inequality and Poverty

Juan C. Palomino, Juan G. Rodríguez and Raquel Sebastian

The “social distancing” measures taken to contain the spread of COVID-19 impose economic costs that go beyond the contraction of GDP. Since different occupations are not equally affected, this supply shock may have distributional implications. Here, we evaluate the potential impact of enforced social distancing on wage inequality and poverty across Europe. We compute a Lockdown Working Ability (LWA) index which represents the capacity of individuals to work under a lockdown given their teleworking index −that we obtain for European occupations using 2018 EU-LFS− and whether their occupation is essential or closed. Combining our LWA index and 2018 EU-SILC, we calculate individuals’ potential wage losses under six scenarios of lockdown. The Lockdown Incidence Curves show striking differential wage losses across the distribution, and we consistently find that both poverty and wage inequality rise in all European countries. These changes increase with the duration of the lockdown and vary with the country under consideration. We estimate an increase in the headcount index of 3 percentage points for overall Europe, while the mean loss rate for the poor is 10.3%, using the 2 months lockdown simulation. In the same scenario, inequality measured by the Gini coefficient increases 2.2% in all Europe, but more than 4% in various countries. When we decompose overall inequality in Europe into between- and within-countries components, both elements significantly increase with the lockdown, being the change of the latter more important.

Issue : 24

Cost-benefit analysis of age-specific deconfinement strategies

Age-specific Deconfinement Strategies

I calibrate a Multi-Risk SIR model on the covid pandemic to analyze the impact of the age-specific confinement and PCR testing policies on incomes and mortality. Two polar strategies emerge as potentially optimal. The suppression policy would crush the curve by confining 90% of the population for 4 months to eradicate the virus. The flatten-the-curve policy would reduce the confinement to 30% of the population for 5 months, followed by almost one year of free circulation of the virus to attain herd immunity without overwhelming hospitals. Both strategies yield a total cost of around 15% of annual GDP when combining the economic cost of confinement with the value of lives lost. I show that hesitating between the two strategies can have a huge societal cost, in particular if the suppression policy is stopped too early. Because seniors are much more vulnerable, a simple recommendation emerges to shelter them as one deconfines young and middle-aged people in order to build our collective herd immunity. By doing so, one reduces the death toll of the pandemic together with the economic cost of the confinement, and the total cost is divided by a factor 2. I also show that expanding the mass testing capacity to screen people sent back to work has a large benefit under various scenarios. This analysis is highly dependent upon deeply uncertain epidemiologic, sociological, economic and ethical parameters.

The economic effects of Covid-19 containment measures

The Economic Effect of Containment Measures

Pragyan Deb, Davide Furceri, Jonathan D. Ostry and Nour Tawk

Many countries around the world have implemented stringent containment measures to halt the spread of the 2019 coronavirus disease (Covid-19) and limit the number of fatalities. Though crucial to slow the course of the pandemic, these measures entail large short-term economic costs. This paper tries to quantify these effects using daily data on real-time containment measures implemented by countries around the world as well as daily indicators of economic activity such as Nitrogen Dioxide (NO2) emissions, international and domestic flights, energy consumption, maritime trade, and retail mobility indices. Results suggest that containment measures have had, on average, a very large impact on economic activity—equivalent to a loss of about 15 percent in industrial production over a 30-day period following the implementation of containment measures. Using a novel database on discretionary fiscal and monetary policy measures implemented by countries in response to the crisis, we find that these policy measures have been effective in mitigating some of these costs. Finally, we find that among different types of containment measures, while stay-at-home requirements and workplace closures are the most effective in curbing both infections and deaths, they are also those associated with the largest economic costs.

God is in the rain: The impact of rainfall-induced early social distancing on Covid-19 outbreaks

Rolly Kapoor, Haedong Aiden Rho, Kinpritma Sangha, Bhavyaa Sharma, Ajay Shenoy and Guanghong Xu

We test whether earlier social distancing affects the progression of a local COVID-19 outbreak. We exploit county-level rainfall on the last weekend before statewide lockdown. After controlling for historical rainfall, temperature, and state fixed-effects, current rainfall is a plausibly exogenous instrument for social distancing. Early distancing causes a reduction in cases and deaths that persists for weeks. The effect is driven by a reduction in the chance of a very large outbreak. The result suggests early distancing may have sizable returns, and that random events early in an outbreak can have persistent effects on its course.

Spatial distancing: air traffic, Covid-19 propagation, and the cost efficiency of air travel restrictions

Nicolas Gonne and Olivier Hubert

We analyse how air traffic across countries contributed to the propagation of COVID-19 by fitting a Spatial Durbin-Watson model adapted to local projections. Such a model explicitly accounts for spatial dependence of observations and allows to track the effect of domestic and foreign new infections over time. Our estimates show that air travel-induced cases amount to 8-9% of all confirmed cases on average, and that these infections from abroad came in two waves: in mid-March and the fourth week of March. We also evaluate that air travel restrictions had a marked impact in reducing the progression of the pandemic from April onward. Closing all air traffic 4 weeks earlier could have prevented between 7,000 and 7,800 deaths. Based on standard values of a statistical life and on the latest estimates of GDP loss induced by air travel restrictions, we conclude that, just as social distancing, spatial distancing might be a cost-effective way to tackle COVID-19 in the short run.

Time series models based on growth curves with applications to forecasting coronavirus

Andrew Harvey and Paul Kattuman

Time series models are developed for predicting future values of a variable which when cumulated is subject to an unknown saturation level. Such models are relevant for many disciplines, but here attention is focussed on the spread of epidemics and the applications are for coronavirus. The time series models are relatively simple but are such that their specification can be assessed by standard statistical test procedures. In the generalized logistic class of models, the logarithm of the growth rate of the cumulative series depends on a time trend. Allowing this trend to be time-varying introduces further flexibility and enables the effects of changes in policy to be tracked and evaluated.

The impact of Covid-19 on the US child care market: Evidence from stay-at-home orders

Umair Ali, Chris M. Herbst, and Christos A. Makridis

Stay-at-home orders (SAHOs) have been implemented in most U.S. states to mitigate the spread of COVID-19. This paper quantifies the short-run impact of these containment policies on search behavior and labor demand for child care. The child care market may be particularly vulnerable to a SAHO-type policy shock, given that many providers are liquidity-constrained. Using plausibly exogenous variation from the staggered adoption of SAHOs across states, we find that online job postings for early care and education teachers declined by 13% after enactment. This effect is driven exclusively by private-sector services. Indeed, hiring by public programs like Head Start and pre-kindergarten has not been influenced by SAHOs. In addition, we find little evidence that child care search behavior among households has been altered. Because forced supply-side changes appear to be at play, our results suggest that households may not be well-equipped to insure against the rapid transition to the production of child care. We discuss the implications of these results for child development and parental employment decisions.

The potential impact of the Covid-19 pandemic on the welfare of remittance-dependent households in the Philippines

Remittances: The Case of the Phillipines

Enerelt Murakami, Satoshi Shimizutani, and Eiji Yamada

The outbreak of the Coronavirus Disease 2019 (COVID-19) is inevitably affecting remittance-dependent countries through economic downturns in the destination countries, and restrictions on travel and sending remittances to their home country. This paper explores the potential impacts of the COVID-19 pandemic on the welfare of remittance-dependent households using a dataset collected in heavily remittance-dependent regions in the Philippines prior to the outbreak. First, the empirical model pins down the relationship between the macroeconomic performance of the destination countries, the amount of remittances, and the welfare of households. Second, we use the difference in the IMF’s forecasts for the 2020 GDP before and after the COVID-19 crisis to project potential impacts on households caused by the COVID-19 pandemic. Our projection shows that remittance inflow will decrease by 23-32% and household spending per capita will decline by 2.2-3.3% in one year as a result of the pandemic.

Which measures flattened the curve in Germany?

How Did Germany Flatten the Curve?

We evaluate the effects of containment measures on flattening the COVID-19 infection curve in Germany. Constructing a regional daily panel dataset, we make use of the fact that different containment measures were implemented by the German state governments at different times and not uniformly nationwide. The results show that the cancellation of mass events, school and childcare closures and curfews played an important role, just as further unobserved factors beyond government interventions. In contrast, we find only limited evidence for additional effects of the closures of service sectors in public life.

Issue : 23

How to exit Covid-19 lockdowns: Culture matters

Jean-Philippe Platteau, Vincenzo Verardi

A key question is how countries can gradually exit the covid-19 lockdown in order to re-open their economies and mitigate the huge economic costs that the lockdown is imposing. Answering this question is the first step of the analysis proposed in this paper. Using a benchmark country known to be severely hit by the virus (Belgium), it compares the epidemiological effects of different stereotyped exit strategies. It concludes that, in order to avoid a rebound in infections and follow a relatively quick path toward ending the epidemic, the re-opening of the economy and the society must be very cautious and strict measures of social distancing and an ambitious and effective testing programme must be implemented. The second step, and main point of the paper, consists of exploring the role of a country’s culture, more particularly the prevailing contact habits and norms. This is done by substituting the pattern of inter-individual interactions of two other countries for the pattern observed in the benchmark country. The results are striking: differences in the way people interact, and more specifically the frequencies of their contacts within and between age groups, seem to (partly) explain variations in the incidence of the virus and performances in battling against it. More precisely, if Belgium inherited the interaction pattern of Germany when exiting the lockdown, it could achieve the objective of (partial) re-opening of the economy with more moderate policies than the ones it actually needs. And, conversely, if it inherited the social structure of Italy, it would have to take even more stringent measures lest the cost to bear as a result of economic re-opening should be (much) heavier. In addition to differences in the effectiveness of public health policies and in the genetic make-up of population groups, cultural specificities thus appear to play a significant role in explaining international and inter-regional variations in the incidence of the virus and the impact of public interventions.

Baby steps: The gender division of childcare during the Covid-19 pandemic

Who Looks After the Kids?

Almudena Sevilla and Sarah Smith

The COVID19 pandemic has caused shocks to the demand for home childcare (with the closure of schools and nurseries) and the supply of home childcare (with many people not working). We collect real-time data on daily lives to document that UK families with young children have been doing the equivalent of a working week in childcare. Women have been doing the greater share, but overall, the gender childcare gap (the difference between the share of childcare done by women and the share done by men) for the additional, post-COVID19 hours is smaller than that for the allocation of pre-COVID19 childcare. However, the amount of additional childcare provided by men is very sensitive to their employment – the allocation has become more equal in households where men are working from home and where they have been furloughed/ lost their job. There are likely to be long-term implications from these changes – potentially negative for the careers of parents of young children; but also, more positively for some families, for sharing the burden of childcare more equally in the future.

Production networks and epidemic spreading: How to restart the UK economy?

How to Restart the UK Economy?

Anton Pichler, Marco Pangallo, R. Maria del Rio-Chanona, François Lafond, J. Doyne Farmer

We analyse the economics and epidemiology of different scenarios for a phased restart of the UK economy. Our economic model is designed to address the unique features of the COVID-19 pandemic. Social distancing measures affect both supply and demand, and input-output constraints play a key role in restricting economic output. Standard models for production functions are not adequate to model the short-term effects of lockdown. A survey of industry analysts conducted by IHS Markit allows us to evaluate which inputs for each industry are absolutely necessary for production over a two month period. Our model also includes inventory dynamics and feedback between unemployment and consumption. We demonstrate that economic outcomes are very sensitive to the choice of production function, show how supply constraints cause strong network effects, and find some counter-intuitive effects, such as that reopening only a few industries can actually lower aggregate output. Occupation-specific data and contact surveys allow us to estimate how different industries affect the transmission rate of the disease. We investigate six different re-opening scenarios, presenting our best estimates for the increase in R0 and the increase in GDP. Our results suggest that there is a reasonable compromise that yields a relatively small increase in R0 and delivers a substantial boost in economic output. This corresponds to a situation in which all non-consumer facing industries reopen, schools are open only for workers who need childcare, and everyone who can work from home continues to work from home.

Optimal case detection and social distancing policies to suppress Covid-19

This paper shows that the optimal combination of social distancing and case detection allows for complete and efficient eradication of COVID-19. The first contribution is theoretical. I show that the optimal suppression-policy is a simple function of observable sufficient-statistics, making it easily implementable. I prove that optimal social distancing is the strongest when an outbreak is detected, and then gradually relaxed. If case detection is sufficiently efficient, social distancing vanishes wholly and quickly; otherwise, it needs to stay in place until a vaccine arrives. The second contribution is quantitative. I find that, if Italy adopts digital contact tracing, total suppression costs only 0.8% of annual GDP. In sharp contrast, under the current detection efficiency, the total cost of suppression amounts to at least 14% of GDP.

Exposure to the Covid-19 stock market crash and its effect on household expectations

Tobin Hanspal, Annika Weber and Johannes Wohlfart

We survey a representative sample of US households to study how exposur to the Covid-19 stock market crash affects expectations and planned behavior. Wealth shocks are associated with upward adjustments of expectations about retirement age, desired working hours, and household debt, but have only small effects on expected spending. We provide correlational and experimental evidence that beliefs about the duration of the stock market recovery shape households’ expectations about their own wealth and their planned investment decisions and labor market activity. Our findings shed light on the implications of household exposure to stock market crashes for expectation formation.

Lockdown strategies, mobility patterns and Covid-19

Flattening the Curve: What Works?

Nikos Askitas, Konstantinos Tatsiramos, Bertrand Verheyden

We develop a multiple-events model and exploit within and between country variation in the timing, type and level of intensity of various public policies to study their dynamic effects on the daily incidence of COVID-19 and on population mobility patterns across 135 countries. We remove concurrent policy bias by taking into account the contemporaneous presence of multiple interventions. The main result of the paper is that cancelling public events and imposing restrictions on private gatherings followed by school closures have quantitatively the most pronounced effects on reducing the daily incidence of COVID-19. They are followed by workplace as well as stay-at-home requirements, whose statistical significance and levels of effect are not as pronounced. Instead, we find no effects for international travel controls, public transport closures and restrictions on movements across cities and regions. We establish that these findings are mediated by their effect on population mobility patterns in a manner consistent with time-use and epidemiological factors.

Impact of the state of emergency declaration for Covid-19 on preventive behaviours and mental conditions in Japan: Difference in difference analysis using panel data

Preventive Behaviour and Mental Conditions in Japan

Eiji Yamamura and Yoshiro Tsutsui

During the COVID-19 epidemic in Japan between March and April 2020, Internet surveys were conducted to construct panel data to investigate changes at the individual level regarding preventive behaviors and mental conditions by surveying the same respondents at different times. Specifically, the difference-in-difference (DID) method was used to explore the impact of the COVID-19 state of emergency declared by the government. Key findings were: (1) the declaration led people to stay home, while also generating anger, fear, and anxiety. (2) The effect of the declaration on the promotion of preventive behaviors was larger than the detrimental effect on mental conditions. (3) Overall, the effect on women was larger than that on men.

Fast and local: How lockdown policies affect the spread and severity of covid-19

Lockdown Effects Around the World

Jean-Philippe Bonardi, Quentin Gallea, Dimtrija Kalanoski and Rafael Lalive

We analyse whether the various types of lockdowns implemented around the world mitigated the surge in infections and reduced mortality related to the covid-19, and whether their effectiveness differed in developing vs. developed countries. Our data cover 184 countries from December 31st 2019 to May 4th 2020, and identifies when lockdowns were adopted, along with confirmed cases and deaths. We find that reducing movements within countries has been effective in developed economies -averting about 650,000 deaths- but not in developing ones, that countries that acted fast fared better, and that closing borders has had no appreciable effect, even after fifty-days.

Issue : 22

How should policy responses to the Covid-19 pandemic differ in the developing world?

Lockdowns in Developing and Developed Countries

Titan Alon, Minki Kim, David Lagakos and Mitchell VanVuren

The COVID-19 pandemic has already led to dramatic policy responses in most advanced economies, and in particular sustained lockdowns matched with sizable transfers to much of the workforce. This paper provides a preliminary quantitative analysis of how aggregate policy responses should differ in developing countries. To do so we build an incomplete-markets macroeconomic model with epidemiological dynamics that features several of the main economic and demographic distinctions between advanced and developing economies relevant for the pandemic. We focus in particular on differences in population structure, fiscal capacity, healthcare capacity, the prevalence of ‘hand-to-mouth’ households, and the size of the informal sector. The model predicts that blanket lockdowns are generally less effective in developing countries at reducing the welfare costs of the pandemic, saving fewer lives per unit of lost GDP. Age-specific lockdown policies, on the other hand, may be even more potent in developing countries, saving more lives per unit of lost output than in advanced economies.

Socioeconomic determinants of Covid-19 infections and mortality: Evidence from England and Wales

Infections and Mortality in England Wales

I use simple correlations and regression analysis to study how the number of confirmed Covid-19 cases and the number of deaths with Covid-19 per 100,000 people is related with the socioeconomic characteristics of local areas in England and Wales. I find that local areas that have larger households, worse levels of self-reported health and a larger fraction of people using public transport have more Covid-19 infections per 100,000 people. For mortality, household size and use of public transport are less important, but there is a clear relation with age, ethnicity and self-reported health. Local areas with an older population, a larger share of black or Asian population and worse levels of self-reported health have more Covid-19 deaths per 100,000 people. The relation between self-reported health and infections and mortality suggests that encouraging a healthy lifestyle can help prevent the spread of infection and reduce mortality. Also, as many countries now begin to relax lockdown measures, policymakers should pay particular attention to reducing the risk of infection in public transport.

Covid-19 and people’s healthwealth preferences: information effects and policy implications

Shaun Hargreaves Heap, Christel Koop, Konstantinos Matakos, Asli Unan and Nina Weber

Policy makers responding to COVID-19 need to know people’s relative valuation of health over wealth. Loosening and tightening lockdowns moves a society along a (perceived) health-wealth trade-off and the associated changes have to accord with the public’s relative valuation of health and wealth for maximum compliance. In our survey experiment (N=4,618), we randomize information provision on economic and health costs to assess public preferences over this trade-off in the UK and the US. People strongly prioritize health over wealth, but the treatment effects suggest these priorities will change as experience of COVID-19 deaths and income losses evolves.
Information also has heterogeneous/polarizing effects. These results encourage policy caution. Individual differences in health-wealth valuation highlight this study’s importance because they map onto compliance with current lockdown measures.

Lost in lockdown? Covid-19, social distancing, and mental health in Germany

Mental Health Under Lockdown

Stephanie Armbruster and Valentin Klotzbücher

The COVID-19 pandemic and social-distancing as well as stay-at-home orders can directly affect mental health and quality of life. In this ongoing project, we analyze rich data from Telefonseelsorge, the largest German emergency helpline service, to better understand the effect of the pandemic and of local lockdown measures on mental health–related helpline contacts. First, looking at Germany–wide changes, we find that overall helpline contacts increase by around 25% in the first week of the lockdown and slowly decrease again after the third lockdown week. Our results suggest that the increase is not driven by financial worries or fear of the virus itself, but reflects heightened loneliness, anxiety, and suicidal ideation. Second, we exploit spatial variation in policies among German federal states to assess whether the effect depends on the stringency of local measures. Preliminary evidence suggests that the average effect is more pronounced in states that implemented stricter measures.

How did the 2003 SARS epidemic shape Chinese trade?

Chinese Trade During SARS

Ana Fernandes, Heiwai Tang

This paper examines the impact of the Severe Acute Respiratory Syndrome (SARS) epidemic on China’s trade. Using quarterly transaction-level trade data of all Chinese firms, we find that firms in regions with local transmission of SARS experienced lower import and export growth at both the intensive and extensive margins, compared to those in the unaffected regions. The affected firms’ trade growth remained lower two years after SARS. Products that are more capital-intensive, skill-intensive, upstream in the supply chains, and differentiated experienced a smaller export decline but a stronger recovery. Small exporters were more likely to exit, slowing down trade recovery.

Après-ski: The Spread of Coronavirus from Ischgl through Germany

Explaining Spatial Heterogeneity in Germany

Gabriel Felbermayr, Julian Hinz, Sonali Chowdhry

The Austrian ski resort of Ischgl is commonly claimed to be ground zero for the diffusion of the SARS-CoV-2 virus across Germany. Drawing on data for 401 German counties, we find that conditional on geographical latitude and testing behavior by health authorities, road distance to Ischgl is indeed an important predictor of infection cases, but — in line with expectations — not of fatality rates. Were all German counties located as far from Ischgl as the most distant county of Vorpommern-Rügen, Germany would have seen about 48% fewer COVID-19 cases. A simple diffusion model predicts that the absolute value of the distance-to-Ischgl elasticity should fall over time when inter- and intra-county mobility are unrestricted. We test this hypothesis and conclude that the German lockdown measures have halted the spread of the virus.

A first look at the impact of COVID-19 on commercial real estate prices: Asset-level evidence

Commercial Real Estate Prices

David C. Ling, Chongyu Wang and Tingyu Zhou

This paper examines the impact of the COVID-19 pandemic on commercial real estate prices. We construct a novel measure of listed commercial real estate (CRE) portfolios’ exposure to the growth in COVID-19 cases using a large, granular sample of firms’ individual commercial property holdings. We document a negative relationship between this geographically weighted case growth and risk-adjusted returns. However, there is substantial variation across property types: the retail and hospitality sectors react the most negatively while technology sector reacts positively to the exposure of their portfolios to growth in COVID-19 cases. After conditioning on the property type focus of a firm, days since the beginning of the portfolio’s exposure to the outbreak, the weighted-average population density of the counties in which the portfolio manager is invested, and the extent to which the portfolio is concentrated by property type and geography, other firm characteristics have little effect on the negative stock price impact of the pandemic. Despite negative short-term market reactions, our findings suggest that the sensitivity of CRE returns to increases in reported COVID-19 cases is reduced after announcements of stay-at home orders and state of emergency declarations. We argue that the effects of COVID-19 that we observe in highly liquid stock markets are indicative of pricing effects occurring in private CRE markets.

Issue : 21

Disaster resilience and asset prices

Disaster Resilience and Asset Prices

Marco Pagano, Christian Wagner and Josef Zechner

This paper investigates whether security markets price the effect of social distancing on firms’ operations. We document that firms that are more resilient to social distancing significantly outperformed those with lower resilience during the COVID-19 outbreak, even after controlling for the standard risk factors. Similar cross-sectional return differentials already emerged before the COVID-19 crisis: the 2014-19 cumulative return differential between more and less resilient firms is of similar size as during the outbreak, suggesting growing awareness of pandemic risk well in advance of its materialization. Finally, we use stock option prices to infer the market’s return expectations after the onset of the pandemic: even at a two-year horizon, stocks of more pandemic-resilient firms are expected to yield significantly lower returns than less resilient ones, reflecting their lower exposure to disaster risk. Hence, going forward, markets appear to price exposure to a new risk factor, namely, pandemic risk.

Labor markets during the Covid-19 crisis: A preliminary view

Catastrophic Declines in Employment in the US

Olivier Coibion, Yuriy Gorodnichenko and Michael Weber

We use a repeated large-scale survey of households in the Nielsen Homescan panel to characterize how labor markets are being affected by the covid-19 pandemic. We document several facts. First, job loss has been significantly larger than implied by new unemployment claims: we estimate 20 million lost jobs by April 8th, far more than jobs lost over the entire Great Recession. Second, many of those losing jobs are not actively looking to find new ones. As a result, we estimate the rise in the unemployment rate over the corresponding period to be surprisingly small, only about 2 percentage points. Third, participation in the labor force has declined by 7 percentage points, an unparalleled fall that dwarfs the three percentage point cumulative decline that occurred from 2008 to 2016. Early retirement almost fully explains the drop in labor force participation both for those survey participants previously employed and those previously looking for work. We find increases in the fraction of those being retired across the whole age distribution with women and blacks driving a large part of the accelerated retirement.

International trade of essential goods during a pandemic

Fernando Leibovici and Ana Maria Santacreu

This paper studies the role of international trade of essential goods during a pandemic. We consider a multi-country, multi-sector model with essential and non-essential goods. Essential goods provide utility relative to a reference consumption level, and a pandemic consists of an increase in this reference level. Each country produces domestic varieties of both types of goods using capital and labor subject to sectoral adjustment costs, and all varieties are traded internationally subject to trade barriers. We study the role of international trade of essential goods in mitigating or amplifying the impact of a pandemic. We find that the effects depend crucially on the countries’ trade imbalances in essential goods. Net importers of these goods are relatively worse off during a pandemic than net exporters. The welfare losses of net importers are lower in a world with high trade barriers, while the reverse is the case for net exporters. Yet, once a pandemic arrives, net exporters of essential goods benefit from an increase in trade barriers, while net importers benefit from a decrease in them. These findings are consistent with preliminary evidence on changes in trade barriers across countries during the COVID-19 pandemic.

Learning from friends in a pandemic: Social networks and the macroeconomic response of consumption

Social Networks and Consumption

Christos A. Makridis and Tao Wang

How do individuals adjust their consumption in response to information disseminated through peers and the social network? Using United States data on consumption, coupled with geographic friendship ties to measure social connectivity, this paper quantifies the role of social networks as a propagation mechanism for understanding aggregate fluctuations in consumption. Using the COVID-19 pandemic as a source of variation, we find that a 10% rise in cases and deaths in counties connected through the social network is associated with a 0.64% and 0.33% decline in consumption expenditures–roughly three to seven times as large as the direct effects of local cases or deaths. Counties more socially connected to epicenter countries of the pandemic also saw a bigger drop in consumption. These effects are concentrated among consumer goods and services that rely more on social-contact, suggesting that individuals incorporate the experiences from their social network to inform their own consumption choices. We are working on incorporating this microeconomic evidence into a heterogeneous agent model and social interaction to study the aggregate demand implications.

Banks as lenders of first resort: Evidence from the Covid-19 crisis

Banks as Lenders of First Resort

Lei Li, Philip E. Strahan and Song Zhang

In March of 2020, banks faced the largest increase in liquidity demands ever observed. Firms drew funds on a massive scale from pre-existing credit lines and loan commitments in anticipation of cash flow disruptions from the economic shutdown designed to contain the COVID-19 crisis. The increase in liquidity demands was concentrated at the largest banks, who serve the largest firms. Pre-crisis financial condition did not limit banks’ liquidity supply. Coincident inflows of funds to banks from both the Federal Reserve’s liquidity injection programs and from depositors, along with strong pre-shock bank capital, explain why banks were able to accommodate these liquidity demands.

Optimal control of an epidemic through social distancing

Optimal Social Distancing

Thomas Kruse and Philipp Strack

We analyze how to optimally engage in social distancing (SD) in order to minimize the spread of an infectious disease. We identify conditions under which the optimal policy is single-peaked, i.e., first engages in increasingly more social distancing and subsequently decreases its intensity. We show that the optimal policy might delay measures that decrease the transmission rate substantially to create “herd-immunity” and that engaging in social distancing sub-optimally early can increase the number of fatalities. Finally, we find that optimal social distancing can be an effective measure in substantially reducing the death rate of a disease.

Issue : 20

The cost of the COVID-19 crisis: Lockdowns, macroeconomic expectations, and consumer spending

Real-time Evidence of the Plunge into Recession

Olivier Coibion, Yuriy Gorodnichenko, Michael Weber

We study how the differential timing of local lockdowns due to COVID-19 causally affects households’ spending and macroeconomic expectations at the local level using several waves of a customized survey with more than 10,000 respondents. About 50% of survey participants report income and wealth losses due to the corona virus, with the average losses being $5,293 and $33,482 respectively. Aggregate consumer spending dropped by 31 log percentage points with the largest drops in travel and clothing. We find that households living in counties that went into lockdown earlier expect the unemployment rate over the next twelve months to be 13 percentage points higher and continue to expect higher unemployment at horizons of three to five years. They also expect lower future inflation, report higher uncertainty, expect lower mortgage rates for up to 10 years, and have moved out of foreign stocks into liquid forms of savings. The imposition of lockdowns can account for much of the decline in employment in recent months as well as declines in consumer spending. While lockdowns have pronounced effects on local economic conditions and households’ expectations, they have little impact on approval ratings of Congress, the Fed, or the Treasury but lead to declines in the approval of the President.

In crisis, we pray: Religiosity and the Covid-19 pandemic

In times of crisis, humans have a tendency to turn to religion for comfort and explanation. The 2020 COVID-19 pandemic is no exception. Using daily data on Google searches for 95 countries, this research demonstrates that the COVID-19 crisis has increased Google searches for prayer (relative to all Google searches) to the highest level ever recorded. More than half of the world population had prayed to end the coronavirus. The rise amounts to 50% of the previous level of prayer searches or a quarter of the fall in Google searches for flights, which dropped dramatically due to the closure of most international air transport. Prayer searches rose at all levels of income, inequality, and insecurity, but not for the 10% least religious countries. The increase is not merely a substitute for services in the physical churches that closed down to limit the spread of the virus. Instead, the rise is due to an intensified demand for religion: We pray to cope with adversity.

Narrative economics, public policy and mental health

Annie Tubadji, Frédéric Boy, Don J. Webber

This paper assesses the differential impacts on mental health of distinct public policy lockdown responses to the early part of the Covid-19 pandemic. It develops novel narrative economics of language approach born at the intersection of cultural economics, big data and narrative economic analysis. This approach is reliant on the study of language to extract cultural and behavioural insights with socioeconomic relevance. We sourced Google trend data for seed keywords, death and suicide, and employed difference-in-differences and regression discontinuity estimation techniques to conduct two investigations. First, we compared the amount of emotional distress experienced by British and Italian residents before and after the implementation of lockdown policies. Second, we extended our analysis to include a country that did not impose a lockdown, Sweden, as a control, which facilitated a natural quasi-experiment. Our main findings are that the lockdown policy affected public mental health, yet the dominant factor for public mental health was the cognitive bias of salient public death toll statistics. Countries had a pre-existing culturally relative disposition towards death-related anxiety, and the magnitude of their response to the pandemic varies in a cultural hysteresis manner. Searches for the keyword suicide decreased during the pandemic, while the interest in trivia remained unaffected, as indicated through searches for the keyword chair. Significant spillovers from one ” specific national lockdown public policies to another country’s mental health are identified.

The surprising effect of social distancing on our perception: Coping with uncertainty

Ambiguity Aversion and Distorted Beliefs

Giulia Piccillo and Job Van Den Hurk

Since the beginning of the COVID-19 crisis, our perception of the world significantly changed. In this paper we show the results of 3 studies that collectively illustrate a novel mechanism through which this has happened. We document the effect of social distancing on our perceptions, through the moderating effect of ambiguity aversion. In experiment 1 we show that ambiguity aversion predicts illusory pattern perception, defined as identifying faces in white noise pictures. In experiment 2 we show that ambiguity aversion also predicts higher cognitive level illusory pattern perception, defined as belief in conspiracy theories. Experiment 3 shows, through two uniquely timed questionnaires, that ambiguity aversion increases significantly from before to after the lockdown (due to the COVID-19 pandemic) for a sample of over 300 subjects. Remarkably, this difference in ambiguity aversion is no longer significant when we control for the drop in regular social contact over this period.

Measuring sectoral supply and demand shocks during Covid-19

Labour Shocks: Demand or Supply?

Pedro Brinca, Joao B. Duarte, Miguel Faria-e-Castro

We measure labor demand and supply shocks at the sector level around the Covid-19 outbreak, by estimating a Bayesian structural vector autoregression on monthly statistics of hours worked and real wages and applying the methodology proposed by Baumeister and Hamilton (2015). Our estimates suggest that two-thirds of the 16.24 percentage point drop in the growth rate of hours worked in April 2020 are attributable to supply. Most sectors were subject to historically large negative labor supply and demand shocks in March and April 2020, but there is substantial heterogeneity in the size of these shocks across sectors. Leisure and Hospitality was particularly affected. We find positive labor demand shocks for sectors such as Retail Trade, and Information in March 2020 that vanish in April 2020. We show that our estimates of supply shocks are correlated with sectoral measures of telework.

Issue : 19

Social distancing and supply disruptions in a pandemic

Social Distancing by Sectors

Martin Bodenstein, Gicanarlo Corsetti and Luca Guerrieri

Drastic public health measures such as social distancing or lockdowns can reduce the loss of human life by keeping the number of infected individuals from exceeding the capacity of the health care system but are often criticized because of the social and economic costs they entail. We question this view by combining an epidemiological model, calibrated to capture the spread of the COVID-19 virus, with a multisector model, designed to capture key characteristics of the U.S. Input Output Tables. Our two-sector model features a core sector that produces intermediate inputs not easily replaced by inputs from the other sector, subject to minimum-scale requirements. We show that, by affecting workers in this core sector, the high peak of an infection not mitigated by social distancing may cause very large upfront economic costs in terms of output, consumption and investment. Social distancing measures can reduce these costs, especially if skewed towards non-core industries and occupations with tasks that can be performed from home, helping to smooth the surge in infections among workers in the core sector.

The effect of containment measures on the COVID-19 pandemic

The Effect of Containment Measures

Pragyan Deb, Davide Furceri, Jonathan D. Ostry and Nour Tawk

Since the first outbreak was reported in Wuhan, China in late December 2019, the 2019 coronavirus disease (COVID-19) has spread to over 200 countries/territories globally. In response, many countries have implemented several containment measures to halt the spread of the virus and limit the number of fatalities. It remains unclear the extent to which these unprecedented measures have been successful. The paper examines this question using daily data on the number of COVID-19 cases and deaths as well as on real-time containment measures implemented by countries around the world. Results suggest that containment measures have been, on average, very effective in flattening the “pandemic curve” and reducing the number of fatalities. These effects have been stronger in countries where containment measures have been implemented faster and have resulted in less mobility—de facto, more social distancing—and in those with lower temperatures, lower population density, a larger share of an elderly population and stronger health systems. Among different types of containment measures, stay-at-home orders seems to have been more effective in reducing the number of deaths. However, these adjustments benefitted mostly highly educated workers and white collars. Overall, low-income individuals faced worse labor market outcomes and suffered higher psychological costs.

The spread of COVID-19 and the BCG vaccine: A natural experiment in reunified Germany

Is the BCG Vaccine a protection

Richard Bluhm Maxim Pinkovskiy

As COVID-19 has spread across the globe, several observers noticed that countries still administering an old vaccine against tuberculosis–the BCG vaccine–have had fewer COVID-19 cases and deaths per capita in the early stages of the outbreak. This paper uses a geographic regression discontinuity analysis to study whether and how COVID-19 prevalence changes discontinuously at the old border between West Germany and East Germany. The border used to separate two countries with very different vaccination policies during the Cold War era. We provide formal evidence that there is indeed a sizable discontinuity in COVID-19 cases at the border. However, we also find that the difference in novel coronavirus prevalence is uniform across age groups and show that this discontinuity disappears when commuter flows and demographics are accounted for. These findings are not in line with the BCG hypothesis. We then offer an alternative explanation for the East-West divide. We simulate a canonical SIR model of the epidemic in each German county, allowing infections to spread along commuting patterns. We find that in the simulated data, the number of cases also discontinuously declines as one crosses from west to east over the former border.

Consumer panic in the Covid-19 pandemic

Michael Keane and Timothy Neal

We develop an econometric model of consumer panic (or panic buying) during the COVID-19 pandemic. Using Google search data on relevant keywords, we construct a daily index of consumer panic for 54 countries from January to late April 2020. We also assemble data on government policy announcements and daily COVID-19 cases for all countries. Our panic index reveals widespread consumer panic in most countries, primarily during March, but with significant variation in the timing and severity of panic between countries. Our model implies that both domestic and world virus transmission contribute significantly to consumer panic. But government policy is also important: Internal movement restrictions – whether announced by domestic or foreign governments – generate substantial short run panic that largely vanishes in a week to ten days. Internal movement restrictions announced early in the pandemic generated more panic than those announced later. In contrast, travel restrictions and stimulus announcements had little impact on consumer panic.

Daily suffering: Helpline calls during the Covid-19 crisis

Marius Brülhart and Rafael Lalive

We use helpline calls to measure psychological and social suffering in the population at a daily frequency. Our data are from Switzerland’s most popular free anonymous helpline, focusing on the Covid-19 crisis period. We compare calls (a) between the pandemic period of 2020 and the corresponding period of 2019 and (b) along the timeline of the lockdown. We find the total volume of calls to have grown in line with the long-run trend. To the extent that calls did increase, this was mainly explained by worries linked directly to the pandemic: calls by persons over 65 and calls about fear of infection. Encouragingly, calls about violence were down on the previous year. Calls about addiction and suicidality increased during the initial phase of the lockdown, plateaued, and returned to their 2019 levels once gradual opening started. Calls about relationship problems decreased in the early phase of the lockdown, and gradually increased, again reaching 2019 levels once opening up started. Overall, these results suggest that psychological and social strain is of second-order importance relative to the medical anxieties generated by the pandemic.

Globalization in the Time of COVID-19

Alessandro Sforza and Marina Steininger

The economic effects of a pandemic crucially depend on the extent to which countries are connected in global production networks. In this paper we incorporate production barriers induced by COVID-19 shock into a Ricardian model with sectoral linkages, trade in intermediate goods and sectoral heterogeneity in production. We use the model to quantify the welfare effect of the disruption in production that started in China and quickly spread across the world. We find that the COVID-19 shock has a considerable impact on most economies in the world, especially when a share of the labor force is quarantined. Moreover, we show that global production linkages have a clear role in magnifying the effect of the production shock. Finally, we show that the economic effects of the COVID-19 shock are heterogeneous across sectors, regions and countries, depending on the geographic distribution of industries in each region and country and their degree of integration in the global production network

Jobs’ amenability to working from home: Evidence from skills surveys for 53 countries

Work from Home: Which Jobs?

Maho Hatayama Mariana Viollaz Hernan Winkler

The spread of COVID-19 and implementation of “social distancing” policies around the world have raised the question of how many jobs can be done at home. This paper uses skills surveys from 53 countries at varying levels of economic development to estimate jobs’ amenability to working from home. The paper considers jobs’ characteristics and uses internet access at home as an important determinant of working from home. The findings indicate that the amenability of jobs to working from home increases with the level of economic development of the country. This is driven by jobs in poor countries being more intensive in physical/manual tasks, using less information and communications technology, and having poorer internet connectivity at home. Women, college graduates, and salaried and formal workers have jobs that are more amenable to working from home than the average worker. The opposite holds for workers in hotels and restaurants, construction, agriculture, and commerce. The paper finds that the crisis may exacerbate inequities between and within countries. It also finds that occupations explain less than half of the variability in the working-from-home indexes within countries, which highlights the importance of using individual-level data to assess jobs’ amenability to working from home.

Covid: Not a great equaliser

Labour Market Inequalities

Coronavirus has been portrayed as the “great equalizer”. None seems immune to the virus and to the economic consequences of the lockdown measures imposed to contain its diffusion. We exploit novel data from two real time surveys to study the early impact on the labor market of the lockdown in Italy – one of the two countries, with China, hit hard and early. COVID was not a “great economic equalizer.” Quite on the contrary. Low-educated workers, blue collars and low-income service workers were more likely to have stopped working both three-week and six-week after the lockdown. Low-educated workers were less likely to work from home. Blue collars worked more from their regular workplace, but not from home. Low-income service workers were instead less likely to work from the regular workplace. For both blue collars and low-income service workers, the monthly labor income dropped already in March. Not surprisingly, they were less in agreement with the public policy measures that required the closing of (non-essential) business and activities. Some positive adjustments took place between the third and the sixth week from the lockdown: the share of idle workers dropped, as the proportion of individuals working at home and from their regular workplace increased. However, these adjustments benefitted mostly highly educated workers and white collars. Overall, low-income individuals faced worse labor market outcomes and suffered higher psychological costs.

Issue : 18

Lifting restrictions with changing mobility and the importance of soft containment measures: A SEIRD model of COVID-19 dynamics

Soft Containment Measures

Salvatore Lattanzio and Dario Palumbo

This paper estimates a SEIRD (susceptible-exposed-infected-recovered-deaths) epidemic model of COVID-19, which accounts for both observed and unobserved states and endogenous mobility changes induced by lockdown policies. The model is estimated on Lombardy and London – two regions that had among the worst outbreaks of the disease in the world – and used to predict the evolution of the epidemic under different policies. We show that policies targeted also at mitigating the probability of contagion are more effective in containing the spread of the disease, than the one aimed at just gradually reducing the mobility restrictions. In particular, we show that if the probability of contagion is decreased between 20% and 40% of its original level before the outbreak, while increasing mobility, the total death toll would not be higher than in a permanent lockdown scenario. On the other hand, neglecting such policies could increase the risk of a second epidemic peak even while lifting lockdown measures at later dates. This highlights the importance during the containment of the disease of promoting “soft” policy measures that could reduce the probability of contagion, such as, wearing masks and social distancing.

Social distancing, quarantine, contact tracing and testing: Implications of an augmented SEIR model

Alternatives to Lockdowns

I modify the basic SEIR model to incorporate demand for health care. The model is used to study the relative effectiveness of policy interventions that include social distancing, quarantine, contact tracing, and random testing. A version of the model that is calibrated to the Ferguson et al (2020) model suggests that permanent, high-intensity social distancing reduces mortality rates and peak ICU demand substantially, but that a policy that relaxes high-intensity social distancing over time in the context of a permanent efficient quarantine regime is even more effective. Adding contact tracing and random testing to this policy further improves outcomes. For the policies considered, employment outcomes are determined by their respective social distancing components, not their quarantine component or health outcomes. Given the uncertainty surrounding the disease parameters, especially the transmission rate of the disease, and the effectiveness of policies, the uncertainty for health outcomes, however, is very large.

How does household spending respond to an epidemic? Consumption during the 2020 COVID-19 pandemic

Scott R. Baker, Robert A. Farrokhnia, Steffen Meyer, Michaela Pagel, Constantine Yannelis

We explore how household consumption responds to epidemics, utilizing transaction-level household financial data to investigate the impact of the COVID-19 virus. As the number of cases grew, households began to radically alter their typical spending across a number of major categories. Initially spending increased sharply, particularly in retail, credit card spending and food items. This was followed by a sharp decrease in overall spending. Households responded most strongly in states with shelter-in-place orders in place by March 29th. We explore heterogeneity across partisan affiliation, demographics and income. Greater levels of social distancing are associated with drops in spending, particularly in restaurants and retail.

The medium-run impact of non-pharmaceutical Interventions: Evidence from the 1918 influenza in US cities

This paper uses a difference-in-differences framework to estimate the causal impact on the mortality rate of non-pharmaceutical interventions (NPIs) used to fight the 1918 inuenza pandemic. The results suggest that NPIs such as school closures and social distancing introduced a trade-off. While they could lower the fatality rate during the peak of the inuenza pandemic, they might also have reduced the herd immunity and significantly increased the death rate in subsequent years. There is no significant association between the implementation of NPIs and cities’ growth.

Who can live without two months of income?

Looking at 342 million residents in 21 EU countries, we estimate that 99 million individuals live in households which cannot cover for two months of the most basic expenses – food at home, utilities and rent/mortgage on their single main residence – only from their savings in bank accounts. Without privately earned income but with (pre-covid19) pension income and public transfers, 57 million have savings for less than 2 months. Government support in the form of employment protection schemes and beyond is thus fundamental to ensure livelihood during the covid19 shock, yet many individuals would remain vulnerable if ensured 50% of their gross privately earned income. We estimate mortgage and rent suspension can decrease in half the number of individuals at risk. We find there are stark differences between countries and that individuals born outside of the EU are particularly vulnerable. Those dependent on their income will be forced to resume work earlier and take higher health risks

Internal migration and the spread of Covid-19

Contagion and Internal Migration

In this paper, I hypothesize that internal migrants are key agents in the diffusion of viruses. Self-isolation and closure of economic activities in outbreak areas generate many people jobless or socially isolated. Recently settled migrants might therefore choose to return to their home towns, thus spreading the virus further. To test the existence and the quantitative importance of this mechanism, I use subnational data for Italy. I use panel data at the regional-daily level and exploit detailed data on individuals’ changes of residence between Italian regions before Covid to measure, for each region, the number of potential of return migrants from outbreak areas. The results suggest that regions with more exposed to return migration experienced more Covid deaths throughout nearly all stages of diffusion of the virus. A back-of-the-envelope calculation suggests that, had all regions had the same number of migrants in outbreak areas as the one at the tenth percentile, Italy would have experienced around 2000 fewer Covid deaths, i.e, 22-24 percent fewer deaths than the regions outside the outbreak areas actually experienced.

The impact of pessimistic expectations on the effects of COVID-19-induced uncertainty in the euro area

Giovanni Pellegrino, Federico Ravenna and Gabriel Züllig

We estimate a nonlinear VAR model allowing for the impact of uncertainty shocks to depend on the average outlook of the economy measured by survey data. We find that, in response to the same uncertainty shock, industrial production and inflation’s peak decrease is around three and a half times larger during pessimistic times. We build scenarios for a path of innovations in uncertainty consistent with the COVID-19-induced shock. Industrial production is predicted to experience a year-over-year peak loss of between 15.1% and 19% peaking between September and December 2020, and subsequently to recover with a rebound to pre-crisis levels between May and August 2021. The large impact is the result of an extreme shock to uncertainty occurring at a time of very negative expectations on the economic outlook.

Democracy, culture, and contagion: Political regimes and countries’ responsiveness to Covid-19

Political Regimes and Lockdowns

Carl Benedikt Frey, Chinchih Chen and Giorgio Presidente

A widely held belief is that autocratic governments have been more effective in reducing the movement of people to curb the spread of Covid-19. Using the Oxford COVID-19 Government Response Tracker (OxCGRT), and a real-time dataset with daily information on travel and movement across 111 countries, we find that autocratic regimes imposed more stringent lockdowns and relied more on contact tracing. However, we find no evidence that autocratic governments were more effective in reducing travel, and evidence to the contrary: countries with democratically accountable governments introduced less stringent lockdowns but were more effective in reducing geographic mobility at the same level of policy stringency. In addition, building on a large literature on cross-cultural psychology, we show that for the same policy stringency, countries with collectivist cultural traits experienced larger declines in geographic mobility relative to their more individualistic counterparts. We conclude that, in terms of reducing mobility, collectivist and democratic countries have implemented relatively effective responses to Covid-19.

Issue : 17

Pandemic lockdown: The role of government commitment

Credibility of Lockdown Commitments

Christian Moser and Pierre Yared

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.

The impact of shutdown policies on unemployment during a pandemic

Shutdown and Unemployment

Edward Kong, Daniel Prinz

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.

Bowling together by bowling alone: Social capital and Covid-19

Francesca Borgonovi and Elodie Andrieu

The literature documents a strong positive association between social capital and health. 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.

Can the Covid bailouts save the economy?

Vadim Elenev, Tim Landvoigt and Stijn Van Nieuwerburgh

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.

The (structural) gravity of epidemics

A Gravity Epidemiological Model

Alejandro Cuñat and Robert Zymek

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.

Mitigation of risks of Covid-19 contagion and robotisation: Evidence from Italy

Mauro Caselli, Andrea Fracasso and Silvio Traverso

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.

In and out lockdowns: Identifying the centrality of economic activities

Re-opening the Use of Input-Output Tables

Giorgio Barba Navaretti, Giacomo Calzolari, Andrea Dossena, Alessandra Lanza and Alberto Franco Pozzolo

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. 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, 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. The administrative lockdown implemented up to May 4th, 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.

Six-country survey on Covid-19

Michèle Belot, Eline van den Broek-Altenburg, Syngjoo Choi, Julian C. Jamison, Nich olas W. Papageorge and Egon Tripodi

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.

Issue : 16

Do lockdowns work? A counterfactual for Sweden

Benjamin Born, Alexander M. Dietrich, Gernot J. Müller

Is a lockdown an effective means to limit the spread of the COVID-19 pandemic? We study the case of Sweden—one of the few countries without a lockdown—and use synthetic control techniques to develop a counterfactual lockdown scenario. First, we use a “donor pool” of European countries to construct a doppelganger that behaves just like Sweden in terms of infections before the lockdown. Second, we find that infection dynamics in the doppelganger since the lockdown do not systematically differ from the actual dynamics in Sweden. Third, we study Google mobility data and find that Swedes adjusted their activities in similar ways as in the doppelganger, although to a somewhat lesser extent.

Gender equality in work and Covid-19 deaths

On average, women comprise a smaller share of deaths from Covid-19. However, variation in the share of Covid-19 deaths for women across countries and US States suggests that biological factors cannot fully account for this gender difference. I hypothesize that women’s participation in the workforce is related to women’s share of Covid-19 deaths. I show that the percent of the full-time workforce comprised by women is positively related to the percent of female Covid-19 deaths across countries. I also show that the percent of the full-time workforce comprised by women is positively related to the incidence of various diseases associated with a more severe impact of Covid-19 and the percent of medical doctors and nurses who are women. My results suggest that in countries where women participate more fully in the workforce, women may be more susceptible to Covid-19 due to increased exposure to the virus and a higher risk of developing comorbidities. Future research should be careful to consider social factors when examining gender differences in health outcomes

Shutdown policies and worldwide conflict

Nicolas Berman, Mathieu Couttenier, Nathalie Monnet, Rohit Ticku

We provide real-time evidence on the impact of Covid-19 restrictions policies on conflicts globally. We combine daily information on conflict events and government policy responses to limit the spread of coronavirus to study how conflict levels vary following shutdown and lockdown policies. We use the staggered implementation of restriction policies across countries to identify their effect on conflict incidence and intensity. Our results show that imposing a nation-wide shutdown reduces the likelihood of daily conflict by around 9 percentage points. The reduction is driven by a drop in the incidence of battles, protests and violence against civilians. Across actors the decline is significant for conflicts involving political militias, protesters and civilians. We also observe a significant cross-country heterogeneity in the effect of restriction policies on conflict: no conflict reduction is observed in low income countries and in societies more fractionalized along ethnic or religious lines. We discuss the potential channels that can explain this heterogeneity.

Getting people back into work

Getting People Back Into Work

Monica Costa Dias, Christine Farquharson, Rachel Griffith, Robert Joyce and Peter Levell

Governments are starting to ease restrictions to economic activity. The risks of easing these measures too soon, or in misguided ways, are obvious, not only for public health but also for the economy. A world with no lockdown and a pandemic spreading rapidly through the population does not make for a healthy economy; nor, in all likelihood, does a world in which containment measures have to be repeatedly re-instated after being eased prematurely or in sub-optimal ways. We discuss some key economic issues that the UK government needs to face when thinking about how best to get people back into work: we assemble some basic empirical evidence, identify some challenges that policy-makers will need to confront, and discuss some policy considerations

If the objective is herd immunity, on whom should it be built?

Assuming that there is no other solution than herd immunity in front of the current pandemic, on which categories of citizens should we build this herd immunity? Given the fact that young people face a mortality rate which is at least a thousand times smaller than people aged 70 years and more, there is a simple rational to build it on these younger generations. The transfer of some mortality risk to younger people raises difficult ethical issues. However, none of the familiar moral or operational guidelines (equality of rights, VSL, QALY, …) that have been used in the Western world over the last century weights the value of young lives 1000 times or more than the lives of the elders. This suggests that Society could offer covid protection to the elders by confining them as long as this herd immunity has not been attained by the younger generations. This would be a potent demonstration of intergenerational solidarity towards the most vulnerable people in our community. The welfare gain of this age-specific deconfinement strategy is huge, as it can reduce the global death toll by more than 80%.

Nash SIR: An economic-epidemiological model of strategic behaviour during a viral epidemic

This paper develops a Nash-equilibrium extension of the classic SIR model of infectious-disease epidemiology (“Nash SIR”), endogenizing people’s decisions whether to engage in economic activity during a viral epidemic and allowing for complementarity in social-economic activity. An equilibrium epidemic is one in which Nash equilibrium behavior during the epidemic generates the epidemic. There may be multiple equilibrium epidemics, in which case the epidemic trajectory can be shaped through the coordination of expectations, in addition to other sorts of interventions such as stay-at-home orders and accelerated vaccine development. An algorithm is provided to compute all equilibrium epidemics.

Should I stay or should I go (out): The role of trust and norms in disease prevention during pandemics

The Role of Trust and Norms

Toker Doganoglu and Emre Ozdenoren

In this paper we construct country specific indices of mobility and trust. We use Google Covid 19 Community Mobility Reports for the former, and World Values Survey and the European Values Study for the latter. We find that the trust index has some power in explaining mobility attitudes of nations, and trust increases mobility around workplaces, groceries/pharmacies, parks, and transit stations. We then present a model where people decide whether to stay at home or go out and if they go out how much effort to spend to protect themselves from the disease which has positive externalities on others. We assume that the effort cost of protection depends on the norm in the community and show that more people can go out when either the norm increases or people put more weight on it. Interpreting the weight on the norm as a measure of trust, our theory sheds light on the empirical findings.

Assessing the spread of the novel coronavirus in the absence of mass testing

Measurement Without Testing

Oscar Dimdore-Miles and David Miles

This note outlines a simple method for estimating the spread of the COVID 19 virus in the absence of data on test results for a large, random sample of the population. It applies the method to the UK, and other countries, and finds that to match data on daily new cases of the virus, the estimated model favours high values for the number of people infected but asymptomatic. That result is very sensitive to whether the transmission rate of the virus is different for symptomatic and asymptomatic cases, something about which there is significant uncertainty. This illustrates how difficult it is to estimate the spread of the virus until very large samples of the population can be tested. Nonetheless, there is evidence that the infection may have spread far enough to mean that the trajectory of falling new cases could be maintained with some easing of restrictions.

Issue : 15

A note on long-run persistence of public health outcomes in pandemics

Peter Zhixian Lin Christopher M. Meissner

Covid-19 is the single largest threat to global public health since the Spanish Influenza pandemic of 1918-20. Was the world better prepared in 2020 than it was in 1918? After a century of public health and basic science research, pandemic response and mortality outcomes should be better than in 1918-20. We ask whether historical mortality from pandemics has any predictive content for mortality in the ongoing Covid-19 pandemic. We find a strong persistence in public health performance in the early days of the Covid-19 pandemic. Places that performed poorly in terms of mortality in 1918 were more likely to have higher mortality today. This is true across countries and across a sample of US cities. Experience with SARS is associated with lower mortality today. Distrust of expert advice, lack of cooperation at many levels, over-confidence, and health care supply shortages have likely promoted higher mortality today as in the past.

Voluntary and mandatory social distancing: Evidence on Covid-19 exposure rates from Chinese provinces and selected countries

Voluntary and Mandatory Social Distancing

Alexander Chudik, M. Hashem Pesaran, Alessandro Rebucci

This paper considers a modification of the standard Susceptible-Infected-Recovered (SIR) model of epidemic that allows for different degrees of compulsory as well as voluntary social distancing. It is shown that the fraction of population that self-isolates varies with the perceived probability of contracting the disease. Implications of social distancing both on the epidemic and recession curves are investigated and their trade off is simulated under a number of different social distancing and economic participation scenarios. We show that mandating social distancing is very effective at flattening the epidemic curve but is costly in terms of employment loss. However, if targeted towards individuals most likely to spread the infection, the employment loss can be somewhat reduced. We also show that voluntary self-isolation driven by individual’s perceived risk of becoming infected kicks in only towards the peak of the epidemic and has little or no impact on flattening the epidemic curve. Using available statistics and correcting for measurement errors, we estimate the rate of exposure to COVID-19 for 21 Chinese provinces and a selected number of countries. The exposure rates are generally small but vary considerably between Hubei and other Chinese provinces as well as across countries. Strikingly, the exposure rate in Hubei province is around 40 times larger than the rates for other Chinese provinces, with the exposure rates for some European countries being 3-5 times larger than Hubei (the epicenter of the epidemic). The paper also provides country-specific estimates of the recovery rate, showing it to be about 21 days (a week longer than the 14 days typically assumed), and relatively homogeneous across Chinese provinces and for a selected number of countries.

The first weeks of the coronavirus crisis: Who got hit, when and why? Evidence from Norway

Who Got Hit, When and Why?

Annette Alstadsæter, Bernt Bratsberg, Gaute Eielsen, Wojciech Kopczuk, Simen Markussen, Oddbjørn Raaum, Knut Røed

Using real-time register data we document the magnitude, dynamics and socio-economic characteristics of the crisis-induced temporary and permanent layoffs in Norway. We find evidence that the effects of social distancing measures quickly spread to industries that were not directly affected by policy. Close to 90% of layoffs are temporary, although this classification may change as the crisis progresses. Still, there is suggestive evidence of immediate stress on a subset of firms that manifests itself in permanent rather than temporary layoffs. We find that the shock had a strong socio-economic gradient, hit a financially vulnerable population, and parents with younger children, and was driven by layoffs in smaller, less productive, and financially weaker firms. Consequently though, the rise in unemployment likely overstates the loss of output associated with the layoffs by about a third.

Pandemic recession: L-shaped or V-shaped?

Long-run Effects on Employment

Victoria Gregory, Guido Menzio, David Wiczer

We develop and calibrate a search-theoretic model of the labor market in order to forecast the evolution of the aggregate US labor market during and after the coronavirus pandemic. The model is designed to capture the heterogeneity of the transitions of individual workers across states of unemployment, employment and across different employers. The model is also designed to capture the trade-offs in the choice between temporary and permanent layoffs. Under reasonable parametrizations of the model, the lockdown instituted to prevent the spread of the novel coronavirus is shown to have long-lasting negative effects on unemployment. This is so because the lockdown disproportionately disrupts the employment of workers who need years to find stable jobs.

Equilibrium social distancing

Equilibrium Social Distancing

This paper presents an economic model of an epidemic in which susceptible individuals may engage in costly social distancing in order to avoid becoming infected. Infected individuals eventually recover and acquire immunity, thereby ceasing to be a source of infection to others. Under non-cooperative and forward-looking decision making, equilibrium social distancing arises endogenously around the peak of the epidemic, when disease prevalence reaches a critical threshold determined by preferences. Spontaneous, uncoordinated social distancing thus acts to flatten the curve of the epidemic by reducing peak prevalence. In equilibrium, social distancing stops once herd immunity sets in, but acts to extend the duration of the epidemic beyond the benchmark of a non-behavioral epidemiological model. Comparative statics with respect to the model parameters indicate that the curve becomes flatter(i) the more infectious the disease is and (ii) the more severe the health consequences of the disease are for the individuals.

Public firm borrowers of the US Paycheck Protection Program

The US Paycheck Protection Program

Anna Cororaton, Samuel Rosen

We provide an initial assessment of the US Paycheck Protection Program by studying the 273 public firms that received a total of $929 million in loans between April 7 – 27, 2020. Despite receiving significant media coverage, these firms comprise 0.3% of the funds disbursed. Using guidelines specified by the US Small Business Administration, we document that about half of public firms were eligible to apply, of which 13% were eventual borrowers. Within the set of eligible firms, public firm borrowers tended to be smaller, have more employees, have fewer investment opportunities, have preexisting debt balances, and be located in a county with COVID-19 cases. Implementing additional eligibility requirements may help target funds towards the most constrained firm.

Assessing the consequences of quarantines during a pandemic

Quarantine: When and How Long

Rikard Forslid, Mathias Herzing

This paper analyzes the epidemiological and economic effects of quarantines. We use a basic epidemiological model, a SEIR-model, that is calibrated to roughly resemble the COVID-19 pandemic, and we assume that individuals that become infected or are isolated on average lose a share of their productivity. An early quarantine postpones but does not alter the course of the pandemic at a cost that increases in the duration and the extent of the quarantine. For quarantines at later stages of the pandemic there is a trade-off between lowering the peak level of infectious people on the one hand and minimizing fatalities and economic losses on the other hand. A longer quarantine dampens the peak level of infectious people and also reduces the total number of infected persons but increases economic losses. Both the peak level of infectious individuals and the total share of the population that will have been infected are U-shaped in relation to the share of the population in quarantine, while economic costs increase in this share. In particular, a quarantine covering a moderate share of the population leads to a lower peak, fewer deaths and lower economic costs, but it implies that the peak of the pandemic occurs earlier.

Short-term impact of COVID-19 on poverty in Africa

Gbêtondji Melaine, Armel Nonvide

Less impacted than the rest of the world, the African continent is also facing the spread of Covid 19 and the numbers of confirmed cases are rising. This paper estimates the short-term impact of COVID-19 on poverty in Africa using the World Bank’s PovcalNet dataset. Three scenario were used including low, medium and high consumption contractions of 10%, 20% and 30%. The impact is estimated based on the US$ 1.90 per day poverty line. First, the impact of COVID-19 is estimated for the whole Africa. Secondly, to account for the regional heterogeneity, the impact is estimated separately for the five regions in Africa. The results indicate that the number of poor people in Africa would increase by between 59 – 200 million due to contractions in consumption as a result of COVID-19 pandemic. In all three scenario, West Africa and East Africa are the most affected by contractions in consumption due to the COVID-19 pandemic, while North Africa is the least affected among the five regions in Africa. The findings suggest that COVID-19 pandemic is a serious threat for achieving the Sustainable Development Goals (SDGs). Therefore, governments and international organizations should increase efforts in supporting the economic activities in all countries.

Issue : 14

A simple planning problem for Covid-19 lockdown

Fernando Alvarez, David Argente and Francesco Lippi

We study the optimal lockdown policy for a planner who controls the fatalities of a pandemic while minimizing the output costs of the lockdown. The policy depends on the fraction of infected and susceptible in the population, prescribing a severe lockdown beginning two weeks after the outbreak, covering 60% of the population after a month, and gradually withdrawing to 20% of the population after 3 months. The intensity of the optimal lockdown depends on the gradient of the fatality rate with respect to the infected, and the availability of antibody testing that yields a welfare gain of 2% of GDP. We also analyze a test-tracing and quarantine (TTQ) policy. We find that TTQ is, in general, complementary to a lockdown.

Economic policy incentives to preserve lives and livelihoods

Roberto Chang and Andrés Velasco

The Covid-19 pandemic has motivated a myriad of studies and proposals on how economic policy should respond to this colossal shock. But participants in this debate seldom recognize that the health shock is not entirely exogenous. Its magnitude and dynamics themselves depend on economic policies, and the explicit or implicit incentives those policies provide. To illuminate the feedback loops between medical and economic factors we develop a minimal economic model of pandemics. In the model, as in reality, individual decisions to comply (or not) with virus-related public health directives depend on economic variables and incentives, which themselves respond to current economic policy and expectations of future policies. The analysis yields several practical lessons: because policies affect the speed of virus transmission via incentives, public health measures and economic policies can complement each other, reducing the cost of attaining desired social goals; expectations of expansionary macroeconomic policies during the recovery phase can help reduce the speed of infection, and hence the size of the health shock; the credibility of announced policies is key to rule out both self-fulfilling pessimistic expectations and time inconsistency problems. The analysis also yields a critique of the current use of SIR models for policy evaluation, in the spirit of Lucas (1976).

Where are the missing emergencies? Lockdown and health risk during the pandemic

Jorge Alé-Chilet Juan Pablo Atal Patricio Domínguez

Health care practitioners around the globe have observed that the COVID19 crisis has been associated with an unprecedented decrease in non-COVID-19 visits to emergency departments. We corroborate this observation using administrative daily data from Chile and study the potential causes for this decrease. To that end, we merge regional emergency visits with Google mobility data and show that the crisis-induced changes in mobility patterns explain a significant portion of the overall drop in nonrespiratory emergency room visits, especially for visits related to trauma and poisoning. Our results reveal that an important reason for the dramatic drop in non-COVID-19 utilization of emergency care is the lower incidence of emergencies. This result suggests that lockdown measures may have the unexpected benefit for public health of freeing up healthcare resources to confront the pandemic.

Health vs. wealth? Public health policies and the economy during Covid-191

Peter Zhixian Lin, Christopher M. Meissner

We study the impact of non-pharmaceutical policy interventions (NPIs) like “stay-at-home” orders on the spread of infectious disease. NPIs are associated with slower growth of Covid-19 cases. NPIs “spillover” into other jurisdictions. NPIs are not associated with significantly worse economic outcomes measured by job losses. Job losses have been no higher in US states that implemented “stay-at-home” during the Covid-19 pandemic than in states that did not have “stay-at-home”. All of these results demonstrate that the Covid-19 pandemic is a common economic and public health shock. The tradeoff between the economy and public health today depends strongly on what is happening elsewhere. This underscores the importance of coordinated economic and public health responses.

When the markets get Covid: Contagion, viruses, and information diffusion

M. M. Croce P. Farroni I. Wolfskeil

We quantify the exposure of major financial markets to news shocks about global contagion risk accounting for local epidemic conditions. For a wide cross section of countries, we construct a novel data set comprising (i) announcements related to COVID19, and (ii) high-frequency data on epidemic news diffused through Twitter. Across several classes of financial assets, we provide novel empirical evidence about financial dynamics (i) around epidemic announcements, (ii) at a daily frequency, and (iii) at an intra-daily frequency. Formal estimations based on both contagion data and social media activity about COVID19 confirm that the market price of contagion risk is very significant. We conclude that prudential policies aimed at mitigating either global contagion or local diffusion may be extremely valuable.

Inequality of fear and selfquarantine: Is there a trade-off between GDP and public health?

Health vs GDP: No Trade-off

Sangmin Aum Sang Yoon (Tim) Lee Yongseok Shin

We construct a quantitative model of an economy hit by an epidemic. People differ by age and skill, and choose occupations and whether to commute to work or work from home, to maximize their income and minimize their fear of infection. Occupations differ by wage, infection risk, and the productivity loss when working from home. By setting the model parameters to replicate the progression of COVID-19 in South Korea and the United Kingdom, we obtain three key results. First, government-imposed lock-downs may not present a clear trade-off between GDP and public health, as commonly believed, even though its immediate effect is to reduce GDP and infections by forcing people to work from home. A premature lifting of the lock-down raises GDP temporarily, but infections rise over the next months to a level at which many people choose to work from home, where they are less productive, driven by the fear of infection. A longer lock-down eventually mitigates the GDP loss as well as flattens the infection curve. Second, if the UK had adopted South Korean policies, its GDP loss and infections would have been substantially smaller both in the short and the long run. This is not because Korea implemented policies sooner, but because aggressive testing and tracking more effectively reduce infections and disrupt the economy less than a blanket lock-down. Finally, low-skill workers and self-employed lose the most from the epidemic and also from the government policies. However, the policy of issuing “visas” to those who have antibodies will disproportionately benefit the low-skilled, by relieving them of the fear of infection and also by allowing them to get back to work.

COVID-19: Cross-country heterogeneity in effectiveness of non-pharmaceutical interventions

Social Distancing Around the World

Gonzalo Castex Evgenia Dechter Miguel Lorca

At the onset of COVID-19 pandemic a large number of countries introduced a range of non-pharmaceutical interventions. Whereas the policies are similar across countries, country characteristics vary substantially. We examine the e↵ectiveness of such policies using a cross-country variation in economic, geographic and public health system characteristics. The effectiveness of lockdown policies is declining with GDP per capita, population density and surface area; and increasing with health expenditure and proportion of physicians in population. The findings can be explained by incentive driven behaviors and resource constraints. Higher population density, larger geographical area, and higher employment rate may require more resources to ensure compliance with lockdown policies. On the other hand, communities with access to better health care might be less likely to voluntary practice social distancing.

Working from home under Covid-19: Who is affected? Evidence from Latin American and Caribbean countries

Isaure Delaporte and Werner Peña

Millions of individuals are required to work from home as part of national efforts to fight COVID-19. To evaluate the employment impact of the pandemic, an important point is whether individuals are able to work from home. This paper estimates the share of jobs that can be performed at home in 23 Latin American and Caribbean (LAC) countries as well as examines the workers’ characteristics associated with such jobs. To carry out this analysis, this paper uses rich harmonised household surveys and presents two measures of teleworkability. The first measure of the feasibility of working from home is borrowed from Dingel and Neiman (2020), while the second closely follows the methodology of Saltiel (2020). We use the second measure as our benchmark, as it is based on a more representative task content of occupations for LAC countries. We find that the share of individuals who are able to work from home varies from 7% in Guatemala to 16% in the Bahamas. We document considerable variation in the potential to work from home across occupations, industries, regions and workers’ socioeconomic characteristics. Our results show that some individuals are better positioned to cope with the current situation than others. This highlights the need to assist the most vulnerable workers in the context of the global pandemic.

Issue : 13

An SEIR infectious disease model with testing and conditional quarantine

David Berger, Kyle Herkenhoff and Simon Mongey

We extend the baseline Susceptible-Exposed-Infectious-Recovered (SEIR) infectious disease epidemiology model to understand the role of testing and case-dependent quarantine. During a period of asymptomatic infection, testing can reveal infection that otherwise would only be revealed later when symptoms develop. Along with those displaying symptoms, such individuals are deemed known positive cases. Quarantine policy is case-dependent in that it can depend on whether a case is unknown, known positive, known negative, or recovered. Testing therefore makes possible the identification and quarantine of infected individuals and release of non-infected individuals. We fix a quarantine technology—a parameter determining the differential rate of transmission in quarantine—and compare simple testing and quarantine policies. We start with a baseline quarantine-only policy that replicates the rate at which individuals are entering quarantine in the US in March, 2020. We show that the total deaths that occur under this policy can occur under looser quarantine measures and a substantial increase in random testing of asymptomatic individuals. Testing at a higher rate in conjunction with targeted quarantine policies can (i) dampen the economic impact of the coronavirus and (ii) reduce peak symptomatic infections—relevant for hospital capacity constraints. Our model can be plugged into richer quantitative extensions of the SEIR model of the kind currently being used to forecast the effects of public health and economic policies.

The determinants of the differential exposure to COVID-19 in New York City and their evolution over time

Milena Almagro and Angelo Orane-Hutchinson

We argue that occupations are a key explanatory variable for understanding the early transmission of COVID-19 in New York City, finding that they play a larger role than other key demographics such as race or income. Moreover, we find no evidence that commuting patterns are significant after controlling for occupations. However, racial disparities still persist for Blacks and Hispanics compared to Whites, although their magnitudes are economically small. We perform a daily analysis over a range of one month to evaluate how different channels interact with the progression of the pandemic and the stay-at-home order. While the coefficient magnitudes of many occupations and demographics decrease, we find evidence consistent with higher intra-household contagion over time. Finally, our results also suggest that crowded spaces play a more important role than population density in the spread of COVID-19.

Cultural and economic discrimination by the Great Leveller: The COVID-19 pandemic in the UK

Cultural and Economic Discrimination

Annie Tubadji, Don J Webber and Fred Boy

This article presents a spatial analysis of COVID-19 mortality rates across England and Wales in the early part of the pandemic (3/January/2020 to 27/March/2020). It assesses whether cultural and/or economic discrimination enhanced the vulnerability of groups of people and places. We used data on lung cancer deaths in non-pandemic times as an instrument for mortality rates during the pandemic and explored the relationship between COVID-19 mortalityrates and the Brexit vote. Results suggest that the effects of cultural discrimination on COVID-19-related mortality is five times greater than the economic effect, and deaths were 19 percent higher in pro-Brexit areas

Macroeconomic consequences of stay-at-home policies during the COVID-19 pandemic

Targeting Who Stays at Home

Neha Bairoliya and Ayse Imrohoroglu

Older adults and those with underlying medical conditions seem especially vulnerable to the COVID-19 pandemic. The U.S. government’s efforts to contain the infection, on the other hand, have a disproportionate impact on the working age population. To be able to capture the impact of the pandemic and the resulting mitigation efforts on a population that is heterogeneous by age, income and health status, we use an overlapping generations model that mimics the U.S. economy along those dimensions in 2020. We introduce an unexpected COVID-19 shock in the economy and examine the resulting impact on aggregate output, labor supply, savings, and consumption behavior of the different agents. We find that mitigation efforts that target certain age and health groups result in significantly smaller disruptions in the economy. Going forward, introducing subsidies to those with underlying health conditions and/or the elderly to self isolate might prove to be a useful path in opening up the economy.

Grey rhinos in financial markets and venue selection: The case of COVID-19

Gbenga Ibikunle and Khaladdin Rzayev

We investigate the effects of the COVID-19-induced shock in financial markets on aggregate venue selection/market share and market quality. We find that the shock is linked with an economically significant loss of market share by dark pools to lit exchanges. In line with theory, the loss appears linked to an increase in lit market volatility and a search for immediacy by traders active in stocks with dark trading access. The market quality implications of the reduction in dark trading are mixed: while it tempers COVID-19- linked liquidity decline in the lit market, it exacerbates the loss of informational efficiency.

Do lockdown and testing help in curbing Covid-19 transmission?

Lockdown and Testing Effects

Akbar Ullah and Olubunmi Agift Ajala

This study investigates the effectiveness of lockdown and testing in curbing the transmission of Covid-19 infection. Using a combination of data from the European Centre for Disease Prevention, Roser et al. (2020) and Hale et al. (2020), we carried cross-country analysis covering 69 countries across the 5 continents. To take care of the fact that the number of Covid-19 cases strongly depend on its own lag values, we used two-step system GMM for the estimations. Unlike prior studies that measure lockdown in terms of a fixed intervention date, we relied on the stringency index from Hale et al. (2020) that accommodates for the gradual lockdown measures in different countries. We found that an exogenous lockdown significantly affects the number of confirmed cases after 7 days of its implementation and its lag effects are intact even after 21 days of its implementation. A one unit change in the lockdown index decreases the total number of confirmed cases by 0.19 percent. Testing has no significant effects for at least 14 days after its implementation. However, after 21 days of its implementation, its effects become significant with −0.03 to −0.05 elasticity value.

Determinants of social distancing and economic activity during COVID-19: A global view

William Maloney and Temel Taskin

The paper uses Google mobility data to identify the determinants of social distancing during the 2020 COVID-19 outbreak. We find for the U.S. that much of the decrease in mobility is voluntary driven by the number of COVID-19 cases and proxying for greater awareness of risk. Non-Pharmaceutical Interventions (NPI) such as closing nonessential business, sheltering in place, school closings are also effective, although with a total contribution dwarfed by the voluntary. This suggests that much social distancing will happen regardless of the presence of NPIs and that restrictions may often function more like a coordinating device among increasingly predisposed individuals than repressive measures per se. These results are consistent across countries income groups with only the poorest (LICs) showing limited effect of NPIs , and no voluntary component, consistent with resistance to abandon sources of livelihood. We also confirm the direct impact of the voluntary component on economic activity by showing that the majority of the fall in restaurant reservations in the U.S., and movie spending in Sweden occurred before the imposition of any NPIs. Widespread voluntary de-mobilization implies that releasing constraints may not yield a V shaped recovery if the reduction in COVID risk not credible.

Startups and employment following the COVID-19 pandemic: A calculator

Start-ups: Achilles’ Heel

Petr Sedláček and Vincent Sterk

Early indicators suggest that startup activity is heavily disrupted by the COVID-19 pandemic and the associated lockdown. At the same time, empirical evidence has shown that such disturbances may have long-lasting effects on aggregate employment. This paper presents a calculator which can be used to compute these effects under different scenarios regarding (i) the number of startups, (ii) the growth potential of startups, and (iii) the survival rate of young firms. We find that employment losses can be substantial and last for more than a decade, even when the assumed slump in startup activity is only short-lived.

Issue : 12

Seller reputation and price gouging: Evidence from the COVID-19 pandemic

We test the theory that seller reputation moderates the effect of demand shocks on a seller’s propensity to price gouge. From mid January to mid March 2020, 3M masks were priced 2.72 times higher than Amazon sold them in 2019. However, the difference (in price ratios) between a post-COVID-19 entrant and an established seller is estimated to be about 1.6 at times of maximum scarcity, that is, post-COVID-19 entrants price at approximately twice the level of established sellers. Similar results are obtained for Purell hand sanitizer. We also consider cumulative reviews as a measure of what a seller has to lose from damaging its reputation and, again, obtain similar results. Finally, we explore policy implications of our results.

Policy implications of models of the spread of coronavirus: Perspectives and opportunities for economists

Christopher Avery, William Bossert, Adam Thomas Clark, Glenn Ellison and Sara Fisher Ellison

This paper provides a critical review of models of the spread of the coronavirus (SARS-CoV 2) that have been influential in recent policy discussions. It notes potentially important features of the real-world environment that the standard models do not incorporate and discusses reasons why estimating critical parameters is difficult. These limitations may bias forecasts and lead forecasters to overstate confidence in their predictions. They also provide social scientists with opportunities to advance the literature and enable improved policies. This paper also discusses how optimal policies might depend on what is learned from new data and models.

Which workers bear the burden of social distancing policies?

The Burden of Social Distancing

Simon Mongey, Laura Pilossoph and Alex Weinberg

What are the characteristics of workers in jobs likely to be initially affected by broad social distancing and later by narrower policy tailored to jobs with low risk of disease transmission? We use O/NET to construct a measure of the likelihood that jobs can be conducted from home (a variant of Dingel and Neiman, 2020) and a measure of low physical proximity to others at work. We validate the measures by showing how they relate to similar measures constructed using time use data from ATUS. Our main finding is that workers in low-workfrom-home or high-physical-proximity jobs are more economically vulnerable across various measures constructed from the CPS and PSID: they are less educated, of lower income, have fewer liquid assets relative to income, and are more likely renters. We further substantiate the measures with behavior during the epidemic. First, we show that MSAs with less pre-virus employment in work-fromhome jobs experienced smaller declines in the incidence of ‘staying-athome’, as measured using SafeGraph cell phone data. Second, we show that both occupations and types of workers predicted to be employed in low work-from-home jobs experienced greater declines in employment according to the March 2020 CPS. For example, non-college educated workers experienced a 4ppt larger decline in employment relative to those with a college degree.

On Covid-19: New implications of job task requirements and spouse’s occupational sorting

Health Risk and Income Loss Within Households

Warn N. Lekfuangfu, Suphanit Piyapromdee, Ponpoje Porapakkarm and Nada Wasi

The Covid-19 pandemic has disrupted working life in many ways, the negative consequences of which may be distributed unevenly under lockdown regulations. In this paper, we construct a new set of pandemic-related indices from the Occupational Information Network (O*NET) using factor analysis. The indices capture two key dimensions of job task requirements: (i) the extent to which jobs can be adaptable to work from home; and (ii) the degree of infection risk at workplace. The interaction of these two dimensions help identify which groups of workers are more vulnerable to income losses, and which groups of occupations pose more risk to public health. This information is crucial for both designing appropriate supporting programs and finding a strategy to reopen the economy while controlling the spread of the virus. In our application, we map the indices to the labor force survey of a developing country, Thailand, to analyze these new labor market risks. We document differences in job characteristics across income groups, at both individual and household levels. First, low income individuals tend to work in occupations that require less physical interaction (lower risk of infection) but are less adaptable to work from home (higher risk of income/job loss) than high income people. Second, the positive occupational sorting among low-income couples amplifies these differences at the household level. Consequently, low-income families tend to face a disproportionately larger risk of income/job loss from lockdown measures. In addition, the different exposure to infection and income risks between income groups can play an important role in shaping up the timing and optimal strategies to unlock the economy.

Words can hurt: How political communication can change the pace of an epidemic

Political Communication in Brazil

Lucas Argentieri Mariani, Jessica Gagete‑Miranda and Paula Rettl

Citizens’ compliance with measures enacted by health authorities can have an important effect on the state of public health, particularly during epidemics. How much can political leaders influence compliance with such measures? In this paper, we analyze this question in the context of Brazil, where the president Jair Bolsonaro disrespected the recommendations and measures implemented by health authorities during a country-wide pro-government demonstration that took place amid the COVID-19 outbreak. We conclude that Bolsonaro’s behavior increased the pace of COVID-19 diffusion. In particular, after the day of the manifestations, the daily number of new COVID-19 is 19% higher in cities that concentrate Bolsonaro’s voters as compared to cities that concentrate opposition voters. In particular, after the day of the manifestations, the daily number of new COVID-19 is 19% higher in cities that concentrate Bolsonaro’s voters as compared to cities that concentrate opposition voters. The impact is verified even in cities where no demonstration took place, which indicates that the quicker spread of COVID-19 was not only due to people agglomerating during the manifestation, but also due to the changed behavior of Bolsonaro’s supporters regarding social distancing measures. We directly test this later mechanism exploring an index of social isolation and find that citizens’ compliance with social distancing decreased among pro-Bolsonaro cities after the demonstrations.

Will Covid-19 affect inequality? Evidence from past pandemics

Inequality in Past Pandemics

Davide Furceri, Prakash Loungani, Jonathan D. Ostry and Pietro Pizzuto

This paper provides evidence on the impact of major epidemics from the past two decades on income distribution. Our results justify the concern that the current pandemic could end up exerting a significant impact on inequality: past events of this kind, even though much smaller in scale, have led to increases in the Gini coefficient, raised the income shares of higher income deciles, and lowered the employment-to-population ratio for those with basic education compared to those with higher education. We provide some evidence that the distributional consequences from the current pandemic may be larger than those flowing from the historical pandemics in our sample.

The global impact of COVID-19 on fintech adoption

Jonathan Fu and Mrinal Mishra

We draw on mobile application data from 74 countries to document the effects of the COVID-19 pandemic on the adoption of digital finance and fintech. We estimate that the spread of COVID-19 and related government lockdowns have led to between a 24 and 32 percent increase in the relative rate of daily downloads of finance mobile applications in the sample countries. In absolute terms, this equates to an average daily increase of roughly 5.2 to 6.3 million application downloads and an aggregate increase of about 316 million app downloads since the pandemic’s outbreak, taking into account prior trends. Most regions across the world exhibit notable increases in absolute, relative, and per capita terms. Preliminary analysis of country-level characteristics suggest that market size and demographics, rather than level of economic development and ex-ante adoption rates, drive differential trends.

Sub-national allocation of COVID-19 tests: An efficiency criterion with an application to Italian regions

Efficient Test Allocation

Christelle Baunez, Mickael Degoulet, Stéphane Luchini, Patrick A. Pintus and Miriam Teschl

Tests are crucial to know about the number of people who have fallen ill with COVID-19 and to understand in real-time whether the dynamics of the pandemic is accelerating or decelerating. But tests are a scarce resource in many countries. The key but still open question is thus how to allocate tests across sub-national levels. We provide a data-driven and operational criterion to allocate tests efficiently across regions or provinces, with the view to maximize detection of people who have been infected. We apply our criterion to Italian regions and compute the shares of tests that should go to each region, which are shown to differ significantly from the actual distribution

Issue : 11

COVID-19 infection externalities: Pursuing herd immunity or containment?

Externalities of Social Distancing

Zachary Bethune and Anton Korinek

We analyze the externalities that arise when social and economic interactions transmit infectious diseases such as COVID-19. Public health measures are essential because individually rational agents do not internalize that they impose infection externalities upon others. In an SIR model calibrated to capture the main features of COVID-19 in the US economy, we show that private agents perceive the cost of an additional infection to be around $80k whereas the social cost including infection externalities is more than three times higher, around $286k. This misvaluation has stark implications for how society ultimately overcomes the disease: individually rational susceptible agents act cautiously to atten the curve of infections, but the disease is not overcome until herd immunity is acquired, with a deep recession and slow recovery lasting several years. By contrast, the socially optimal approach in our model isolates the infected and quickly contains the disease, producing a much milder recession. If the infected and susceptible cannot be targeted independently, then containment is far costlier: it remains optimal for standard statistical values of life but not if only the economic losses from lost lives are counted.

Love in the time of COVID-19: The resiliency of environmental and social stocks

Rui Albuquerque, Yrjo Koskinen, Shuai Yang andChendi Zhan

The COVID-19 pandemic and the subsequent lockdown brought about a massive slowdown of the economy and an unparalleled stock market crash. Using US data, this paper explores how firms with high Environmental and Social (ES) ratings fare during the first quarter of 2020 compared to other firms. We show that stocks with high ES ratings have significantly higher returns, lower return volatilities, and higher trading volumes than other stocks. Firms with high ES ratings and high advertising expenditures perform especially well during the crash. This paper highlights the importance of ES policies in making firms more resilient during a time of crisis.

Saving lives versus saving livelihoods: Can big data technology solve the pandemic dilemma?

This paper studies the effectiveness of big data technology in mitigating the economic and health impacts of the COVID-19 outbreak. I exploit the staggered implementation of contact-tracing apps called “health code” in 322 Chinese cities during the COVID-19 pandemic. Using high-frequency variations in population movements and greenhouse gas emissions across cities before and after the introduction of health code, I disentangle the effect of big data technology from confounding factors such as public sentiments and government responses. I find that big data technology significantly improves the tradeoff between human toll and economic costs. Cities adopting health code experience a significant increase in economic activities without suffering from higher infection rates. Overall, big data technology creates an economic value of 0.5%-0.75% of GDP during the COVID-19 outbreak in China.

Precaution, social distancing and tests in a model of epidemic disease

I develop an extension of a canonical epidemiology model in which the policy in place determines the probability of transmission of an epidemic disease. I use the model to evaluate the effects of isolating symptomatic individuals, of increasing social distancing and of tests of different quality: a poor quality test that can only discriminate between healthy and infected individuals (such as polymerase chain reaction ‘PCR’ or Rapid Diagnostic Test), and a high quality test that is able to discriminate between immune and vulnerable healthy, and infected individuals (such as a serology test like Neutralization Assay). I find that isolating symptomatic individuals has a large effect at delaying and reducing the pick of infections. The combination of this policy with the poor quality test represents only a negligible improvement, whereas with the high quality test there is an additional delaying and reduction in the pick of infections. Social distancing alone cannot achieve similar effects without incurring in enormous output losses. I explore the combined effect of social distancing at early stages of the epidemic with a following period of tests and find that the best outcome is obtained with a light reduction of human interaction for about three months together with a subsequent test of the population over 40 days.

Time for bed(s): Hospital capacity and mortality from COVID-19

Public response to rising deaths from COVID-19 was immediate and, in many cases, drastic, leading to substantial economic and institutional costs. In this paper, I focus on mortality from COVID-19. Using crosscountry evidence and controlling for a variety of contributing factors, I find that increasing the number of hospital beds has a significant and quite substantial impact on mortality rates. Hospital beds likely capture the capacity of ICU, laboratories, and other hospital-related equipment. Facing a potential second or third wave of infection following an exit from lockdown policies, countries short on medical infrastructures should increase them immediately.

COVID-19, fiscal stimulus, and credit ratings

Fiscal Actions and Financial Markets

Anuragh Balajee, Shekhar Tomar and Gautham Udupa

The COVID-19 pandemic has rattled the global economy and has required governments to undertake massive fiscal stimulus to prevent
the economic fallout of social distancing policies. In this paper, we compare the fiscal response of governments from around the world and its main determinants. We find sovereign credit ratings as one of the most critical factors determining their choice. First, the countries with one level worse rating announced 0.3 percentage points lower fiscal stimulus (as a percentage of their GDP). Second, these countries also delayed their fiscal stimulus by an average of 1.7 days. We identify 22 most vulnerable countries, based on their rating and stringency, and find that a stimulus equal to 1 percent of their GDP adds up to USD 87 billion. In order to fight the pandemic, long term loans from multilateral institutions can help these stimulus starved economies.

Issue : 10

Pandemic and local economic growth: Evidence from the Great Influenza in Italy

The Great Influenza in Italy

Mario F. Carillo and Tullio Jappelli

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.

A Generalized SEIR Model of Covid-19 with applications to health policy

A Simple Non-recursive Model

This paper generalizes the standard epidemiological SEIR model of the spread of diseases such as Covid-19 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 in the infected population. Second, it shows how policy measures such as testing and quarantine rules can affect this kernel and how this can provide estimates for the impact and lag of non-pharmaceutical policy interventions. On the technical side, the paper shows how to dispense with the standard assumption of exponential transition dynamics and to work with general transition processes consistent with observed duration frequencies, by using the convolution of densities.

The risk of being a fallen angel and the corporate dash for cash in the midst of COVID

Viral V. Acharya and Sascha Steffen

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 “dash for cash” 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 “dash for cash” 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

Modeling the consumption response to the CARES Act

Consumption Responses to Cares

Christopher D. Carroll, Edmund Crawley, Jiri Slacalek and Matthew N. White

To predict the effects of the 2020 U.S. ‘CARES’ 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.

The natural and unnatural histories of Covid-19 contagion

OLG as an Alternative to SIR

Michael Beenstock and Xieer Dai

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.

The global macroeconomic impacts of COVID-19: Seven scenarios

Warwick McKibbin and Roshen Fernando

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.

Issue : 9

Internal and external effects of social distancing in a pandemics

Externalities of Social Distancing

Maryam Farboodi, Gregor Jarosch and Robert Shimer

We use a conventional dynamic economic model to integrate individual optimization, equilibrium interactions, and policy analysis into the canonical epidemiological model. Our tractable framework allows us to represent both equilibrium and optimal allocations as a set of differential equations that can jointly be solved with the epidemiological model in a unified fashion. Quantitatively, the laissez-faire equilibrium accounts for the decline in social activity we measure in US micro-data from SafeGraph. Relative to that, we highlight three key features of the optimal policy: it imposes immediate, discontinuous social distancing; it keeps social distancing in place for a long time or until treatment is found; and it is never extremely restrictive, keeping the effective reproduction number mildly above the share of the population susceptible to the disease.

Using the eye of the storm to predict the wave of Covid-19 UI claims

Unemployment Insurance and Disasters

Daniel Aaronson, Scott A. Brave, R. Andrew Butters, Daniel W. Sacks and Boyoung Seo

We leverage an event-study research design focused on the seven costliest hurricanes to hit the US mainland since 2004 to identify the elasticity of unemployment insurance filings with respect to search intensity. Applying our elasticity estimate to the state-level Google Trends indexes for the topic “unemployment,” we show that out-ofsample forecasts made ahead of the official data releases for March 21 and 28 predicted to a large degree the extent of the Covid-19 related surge in the demand for unemployment insurance. In addition, we provide a robust assessment of the uncertainty surrounding these estimates and demonstrate their use within a broader forecasting framework for US economic activity.

Air passenger mobility, travel restrictions, and the transmission of the covid-19 pandemic between countries

In this study, I discuss the role of international air traffic in spreading the new corona virus COVID-19 around the world, with a focus on travel restrictions. I build on a sample of 34 mostly European countries reporting international flights to 154 destination countries. This dataset is combined with information on daily reported cases of COVID-19 infections in these countries. I find that more connected countries registered first infection cases significantly earlier than less connected countries. This effect was reinforced by direct flight connections to China. I also show that severe travel restrictions were implemented relatively late in most countries. For a group of 120 countries included in the sample of analysis, three out of four countries already had more than 50 confirmed cases when travel restrictions were implemented. In contrast, very early implementations of air travel restrictions were associated with a delayed onset of infections. As a takeaway for future outbreaks of infectious diseases, the results suggests that the early implementation of travel restrictions could be key in slowing down the spread of infections around the world. The design of a global emergency stop in international travel requires a high level of coordination at a multilateral level in order to preserve supply chains as much as possible.

A cost-benefit analysis of the Covid-19 disease

The British government has been debating how and when to escape from the lockdown without provoking a resurgence of the Covid-19 disease. There is a growing recognition of the damage the lockdown is causing to economic and social life, including deaths and illness amongst the non-infected population. This paper presents a simple cost-benefit analysis based on optimal control theory and incorporating the SIR model of disease propagation. It concludes by presenting some simulations informed by the theoretical discussion. The main conclusions are: (1) the lockdown should be continued for some weeks, and (2) if there is an inexpensive way of reducing the net reproductive rate of the disease to r = 1, this policy should be adopted within a few weeks of exiting lockdown. It is not cost-effective to linger in intermediate stages with more expensive policies designed to keep r well below unity with the hope eradicating the disease.

The costs and benefits of home office during the Covid-19 pandemic: Evidence from infections and an input-output model for Germany

Working at Home in Germany

Harald Fadinger and Jan Schymik

We study the impact of working from home on (i) infection risk in German regions and (ii) output using an input-output (IO) model of the German economy. We find that working from home is very effective in reducing infection risk: regions whose industry structure allows for a larger fraction of work to be done from home experienced much fewer Covid-19 cases and fatalities. Moreover, confinement is significantly more costly in terms of induced output loss in regions where the share of workers who can work from home is lower. When phasing out confinement, home office should be maintained as long as possible, to allow those workers who cannot work from home to go back to work, while keeping infection risk minimal. Finally, systemic industries (with high multipliers and/or high value added per worker) should be given priority, especially those where home office is not possible.

Covid-19 and the macroeconomic effects of costly disasters

Costly Disasters and COVID-19

Sydney C. Ludvigson, Sai Ma and Serena Ng

The outbreak of COVID-19 has significantly disrupted the economy. This paper attempts to quantify the macroeconomic impact of costly and deadly disasters in recent US history, and to translate these estimates into an analysis of the likely impact of COVID-19. A costly disaster series is constructed over the sample 1980:1-2020:04 and the dynamic impact of a disaster shock on economic activity and on uncertainty is studied using a VAR. While past natural disasters are local in nature and come and go quickly, COVID-19 is a global, multiperiod event. We therefore study the dynamic responses to a sequence of large disaster shocks. Even in a fairly conservative case where COVID-19 is a 5-month shock with its magnitude calibrated by the cost of March 2020 Coronavirus relief packages, the shock is forecast to lead to a cumulative loss in industrial production of 20% and in service sector employment of nearly 39% or 55 million jobs over the next 12 months. For each month that a shock of a given magnitude is prolonged from the base case, heightened macro uncertainty persists for another month.

Issue : 8

Scarring Body and Mind: The Long-term Belief-scarring Effects of Covid-19

Julian Kozlowski, Laura Veldkamp and Venky Venkateswaran

The largest economic cost of the COVID-19 pandemic could arise from changes in behavior long after the immediate health crisis is resolved. A potential source of such a long-lived change is scarring of beliefs, a persistent change in the perceived probability of an extreme, negative shock in the future. We show how to quantify the extent of such belief changes and determine their impact on future economic outcomes. We find that the long-run costs for the U.S. economy from this channel is many times higher than the estimates of the short-run losses in output. This suggests that, even if a vaccine cures everyone in a year, the COVID-19 crisis will leave its mark on the US economy for many years to come.

Covid-19: Testing Inequality in New York City

Testing Inequality in NYC

Stephanie Schmitt-Grohé, Ken Teoh and Martín Uribe

Motivated by reports in the media suggesting unequal access to Covid-19 testing across incomes, we analyze zip-code level data on the number of Covid-19 tests, test results, and income per capita in New York City. We find that the number of tests administered is evenly distributed across income levels. In particular, the test distribution across income levels is significantly more egalitarian than the distribution of income itself: The ten percent of the city’s population living in the richest zip codes received 11 percent of the Covid-19 tests and 29 percent of the city’s income. The ten percent of the city’s population living in the poorest zip codes received 10 percent of the tests but only 4 percent of the city’s income. At the same time, we find significant disparity in the fraction of tests that come back negative for the Covid-19 disease across income levels: moving from the poorest zip codes to the richest zip codes is associated with an increase in the fraction of negative Covid-19 test results from 38 to 65 percent.

A workable strategy for Covid-19 Testing: Stratified Periodic Testing Rather Than Universal Random Testing

Matthew Cleevely, Daniel Susskind, David Vines, Louis Vines and Samuel Wills

This paper argues for the regular testing of members of at-risk groups more likely to be exposed to SARS-CoV-2 as a strategy for reducing the spread of Covid-19 and enabling the resumption of economic activity. We call this ‘stratified periodic testing’. It is ‘stratified’ as it is based on at-risk groups, and ‘periodic’ as everyone in the group is tested at regular intervals. We argue that this is a better use of scarce testing resources than ‘universal random testing’, as recently proposed by Paul Romer. We find that universal testing would require checking over 21 percent of the population every day to reduce the effective reproduction number of the epidemic, R’, down to 0.75 (as opposed to 7 percent as argued by Romer). We obtain this rate of testing using a corrected method for calculating the impact of an infectious person on others, where testing and isolation takes place, and where there is self-isolation of symptomatic cases. We also find that any delay between testing and the result being known significantly increases the effective reproduction number and that one day’s delay is equivalent to having a test that is 30 percent less accurate.

Working from Home Across Countries

Who Can Work at Home Around the World

Charles Gottlieb, Jan Grobovšek and Markus Poschke

We study how the share of employment that can work from home changes with country income levels. We document that in urban areas, this share is only about 20% in poor countries, compared to close to 40% in rich ones. This result is driven by the self-employed workers: in poor countries their share of employment is large and their occupational composition not conducive to work from home. At the level of the entire country, the share of employment that can work from home in poor countries compared to rich countries depends on farmers’ ability to work from home. This finding is due to the high agricultural employment share in poor countries.

Welfare Resilience in the Immediate Aftermath of the Covid-19 Outbreak in Italy

Francesco Figari and Carlo V. Fiorio

This paper analyses the extent to which the Italian welfare system provides monetary compensation for those who lost their earnings due to the lockdown imposed by the government in order to contain the Covid-19 pandemic in March 2020. In assessing first-order effects of the businesses temporarily shut down and the government’s policy measures on household income, counterfactual scenarios are simulated with EUROMOD, the EU-wide microsimulation model, integrated with information on the workers who the lockdown is more likely to affect. This paper provides timely evidence on the differing degrees of relative and absolute resilience of the household incomes of the individuals affected by the lockdown. These arise from the variations in the protection offered by the tax-benefit system, coupled with personal and household circumstances of the individuals at risk of income loss.

National Containment Policies and International Cooperation

Thorsten Beck and Wolf Wagner

Policies that curtail social and economic activities during a pandemic are predominantly decided upon at the national level, but have international ramifications. In this paper we examine what type of inefficiencies this may create and how cooperation across countries may improve outcomes. We find that inefficiencies arise even among completely identical countries. We show that countries are likely to choose excessively lenient policies from the perspective of world welfare in later stages of the pandemic. This provides a rationale for setting minimum containment standards internationally. By contrast, in early and intermediate stages of the pandemic, national containment policies may also be excessively strict. Whether or not this is the case depends on a country’s degree of economic integration relative to (outward and inward) mobility of people. Analyzing the stringency of containment policies during the current epidemic confirms that countries with higher economic integration adopt stringent containment policies more quickly whereas countries subject to high mobility do so later.

Issue : 7

Does social distancing matter?

Does Social Distancing matter?

Michael Greenstone and Vishan Nigam

This paper develops and implements a method to monetize the impact of moderate social distancing on deaths from Covid-19. Using the Ferguson et al. (2020) simulation model of Covid-19’s spread and mortality impacts in the United States, we project that three to four months of moderate distancing beginning in late March 2020 would save 1.7 million lives by October 1. Of the lives saved, 630,000 are due to avoided overwhelming of hospital intensive care units. Using the projected age-specific reductions in death and age-varying estimates of the United States Government’s value of a statistical life, we find that the mortality benefits of social distancing are about $8 trillion or $60,000 per US household. Roughly nine-tenths of the monetized benefits are projected to accrue to people age 50 or older. Overall, the analysis suggests that social distancing initiatives and policies in response to the Covid-19 epidemic have substantial economic benefits.

Covid-19 Helicopter Money: Economics and Politics

In a pandemic recession an extraordinary monetary policy – helicopter money – can be considered. If we define helicopter money as a monetization of irredeemable fiscal transfers to citizens that produces losses in the central bank balance sheet, and an independent
central bank acts as a long-sighted policymaker, an optimal helicopter monetary policy can be identified. Yet, if the government in charge is made up of career-concerned politicians and citizens are heterogenous, the policy mix will produce distributional effects, and conflicts between politicians and central bankers will be likely. Political pressures will arise and the optimal helicopter money option will be less likely. The framework is applied in a discussion of the economics and politics of issuing COVID-19 perpetual bonds with the European Central Bank as the buyer.

Scenario Analysis of Non‑pharmaceutical Interventions on Global Covid-19 Transmissions

Effectiveness of Policies

Xiaohui Chen and Ziyi Qiu

This paper introduces a dynamic panel SIR (DP-SIR) model to investigate the impact of non-pharmaceutical interventions (NPIs) on the COVID-19 transmission dynamics with panel data from 9 countries across the globe. By constructing scenarios with different combinations of NPIs, our empirical findings suggest that countries may avoid the lockdown policy with imposing school closure, mask wearing and centralized quarantine to reach similar outcomes on controlling the COVID-19 infection. Our results also suggest that, as of April 4th, 2020, certain countries such as the U.S. and Singapore may require additional measures of NPIs in order to control disease transmissions more effectively, while other countries may cautiously consider to gradually lift some NPIs to mitigate the costs to the overall economy.

On the Optimal ‘Lockdown’ During an Epidemic

Martín Gonzalez-Eiras and Dirk Niepelt

We embed a lockdown choice in a simplified epidemiological model and derive formulas for the optimal lockdown intensity and duration. The optimal policy reflects the rate of time preference, epidemiological factors, the hazard rate of vaccine discovery, learning effects in the health care sector, and the severity of output losses due to a lockdown. In our baseline specification a Covid-19 shock as currently experienced by the US optimally triggers a reduction in economic activity by two thirds, for about 50 days, or approximately 9.5 percent of annual GDP.

Consumer Responses to the COVID-19 Crisis: Evidence From Bank Account Transaction Data

Consumption with Credit Cards

Asger Lau Andersen, Emil Toft Hansen, Niels Johannesen and Adam Sheridan

This paper uses transaction-level customer data from the largest bank in Denmark to estimate consumer responses to the COVID-19 pandemic and the partial shutdown of the economy. We find that aggregate card spending has dropped sharply by around 25% following the shutdown. The drop is mostly concentrated on goods and services whose supply is directly restricted by the shutdown, suggesting a limited role for spillovers to non-restricted sectors through demand in the short term. The spending drop is somewhat larger for individuals more exposed to the economic risks and health risks introduced by the COVID-19 crisis; however, pre-crisis spending shares in the restricted sectors is a much stronger correlate of spending responses.

The COVID-19 Pandemic: Government Versus Community Action Across the United States

Adam Brzezinski, Guido Deiana, Valentin Kecht

Are lockdown policies effective at inducing physical distancing to counter the spread of COVID-19? Can less restrictive measures that rely on voluntary community action achieve a similar effect? Using data from 40 million mobile devices, we find that a lockdown increases the percentage of people who stay at home by 8% across US counties. Grouping states with similar outbreak trajectories together and using an instrumental variables approach, we show that time spent at home can increase by as much as 39%. Moreover, we show that individuals engage in limited physical distancing even in the absence of such policies, once the virus takes hold in their area. Our analysis suggests that non-causal estimates of lockdown policies’ effects can yield biased results. We show that counties where people have less distrust in science, are more highly educated, or have higher incomes see a substantially higher uptake of voluntary physical distancing. This suggests that the targeted promotion of distancing among less responsive groups may be as effective as across-the-board lockdowns, while also being less damaging to the economy.

Issue : 6

US economic activity during the early weeks of the SARS-Cov-2 outbreak

Daniel Lewis, Karel Mertens and James Stock

This paper describes a weekly economic index (WEI) developed to track the rapid economic developments associated with the response to the novel Coronavirus in the United States. The WEI shows a strong and sudden decline in economic activity starting in the week ending March 21, 2020. In the most recent week ending April 4, the WEI indicates economic activity has fallen further to -8.89% scaled to 4 quarter growth in GDP.

Health versus wealth: On the distributional effects of controlling a pandemic

Andrew Glover, Jonathan Heathcote, Dirk Krueger and José-Víctor Ríos-Rull

Many countries are shutting non-essential sectors of the economy to slow the spread of Covid-19. Older individuals have most to gain from slowing virus diffusion. Younger workers in sectors that are shuttered have the most to lose. In this paper we extend a standard epidemiological model of disease progression to include heterogeneity by age, and multiple sources of disease transmission. We then incorporate the epidemiological block into a multisector economic model in which workers differ by sector (basic and luxury) as well as by health status. We study optimal mitigation policies of a utilitarian government that can redistribute resources across individuals, but where such redistribution is costly. We show that optimal redistribution and mitigation policies interact, and reflect a compromise between the strongly diverging preferred policy paths across the subgroups of the population

Supply and demand shocks in the COVID-19 pandemic: An industry and occupation perspective

R. Maria del Rio-Chanona, Penny Mealy, Anton Pichler, Francois Lafond and J. Doyne Farmer

We provide quantitative predictions of first-order supply and demand shocks for the US economy associated with the COVID-19 pandemic at the level of individual occupations and industries. To analyze the supply shock, we classify industries as essential or non-essential and construct a Remote Labor Index, which measures the ability of different occupations to work from home. Demand shocks are based on a study of the likely effect of a severe influenza epidemic developed by the US Congressional Budget Office. Compared to the pre-COVID period, these shocks would threaten around 22% of the US economy’s GDP, jeopardise 24% of jobs and reduce total wage income by 17%. At the industry level, sectors such as transport are likely to have output constrained by demand shocks, while sectors relating to manufacturing, mining and services are more likely to be constrained by supply shocks. Entertainment, restaurants and tourism face large supply and demand shocks. At the occupation level, we show that high-wage occupations are relatively immune from adverse supply and demandside shocks, while low-wage occupations are much more vulnerable. We should emphasize that our results are only first-order shocks – we expect them to be substantially amplified by feedback effects in the production network.

Who can work from home in developing countries?

Home Working in Developing Countries

In this paper, I examine the feasibility of working from home in developing countries. I take advantage of worker-level data from the STEP survey, which collects comparable information on employment outcomes across ten countries. I use information on workers’ tasks to define the feasibility of working from home following Dingel and Neiman (2020). I extend the nascent literature on this topic by providing comparable cross-country evidence on the feasibility of telework. Only 13% of workers in STEP countries could work from home, yet this share ranges from 5.5% in Ghana to 23% in Yunnan (China). The feasibility of working from home is positively correlated with high-paying occupations. Educational attainment, formal employment status and household wealth are positively associated with the possibility of working from home, reflecting the vulnerability of various groups of workers. These relationships remain significant within narrowly defined occupations, yet exhibit heterogeneity across countries. I remark on the importance of rapidly identifying vulnerable workers to design adequate policies to combat the negative employment impacts of COVID-19.

The invisible risk: Pandemics and the financial markets

Are pandemics systemically important to modern-day financial markets? This study uses the COVID-19 pandemic as a natural experiment for testing how large-scale pandemics affect the financial markets. Using hand-collected data at the firm level, I find that managers systematically underestimated their exposure to pandemics in their SEC-mandated risk factors, and the vast majority of firms decreased in value at the pandemic’s onset. I also find that the pandemic triggered unprecedented changes in U.S. employment levels and the values of bonds, commodities, and currencies. These types of findings suggest that pandemics are systemically important to the financial markets. Overall, this study provides some of the first large-scale evidence on how pandemics affect the financial markets.

The 1918 epidemic and a V-shaped recession: Evidence from municipal income data

Christian Møller Dahl, Casper Worm Hansen and Peter Sandholt Jensen

We combine high-quality vital statistics data with annual income data at the municipality level to study the economic aftermath of the 1918-inuenza epidemic in Denmark. Controlling for pre-epidemic trends, we find that more severely affected municipalities experienced short-run declines in income, suggesting that the epidemic led to a V-shaped recession, with relatively moderate, negative effects and a full recovery after 2-3 years. Month-by-industry unemployment data shows that unemployment rates were high during the epidemic, but decreased again only a couple of months after it receded. This evidence also indicates that part of the economic downturn in 1918 predates the epidemic.

Issue : 5

Modelling contacts and transitions in the SIR epidemics model

Pietro Garibaldi, Espen R. Moen and Christopher A. Pissarides

Since the outbreak of the Covid-19 pandemic economists have turned to the SIR model and its subsequent variants for the study of the pandemic’s economic impact. But the SIR model is lacking the optimising behaviour of economic models, in which agents can influence future transitions with their present actions. We borrow ideas and modelling techniques from the Mortensen-Pissarides (1994) search and matching model and show that there is a well-defined solution in line with the original claims of Kermack and McKendrick (1927) but in which incentives play a role in determining the transitions. There are also externalities that justify government intervention in the form of imposing more restrictions on actions outside the home than a decentralised equilibrium would yield.

Macroeconomic dynamics and reallocation in an epidemic

A Theory of the “Swedish Solution”

Dirk Krueger, Harald Uhlig and Taojun Xie

In this paper we argue that endogenous shifts in private consumption behaviour across sectors of the economy can act as a potent mitigation mechanism during an epidemic or when the economy is re-opened after a temporary lockdown. Extending the theoretical framework proposed by Eichenbaum-Rebelo-Trabandt (2020), we distinguish goods by the degree to which they can be consumed at home rather than in a social (and thus possibly contagious) context. We demonstrate that, within the model the “Swedish solution” of letting the epidemic play out without government intervention and allowing agents to shift their sectoral behavior on their own can lead to a substantial mitigation of the economic and human costs of the Covid-19 crisis, avoiding more than 80% of the decline in output and of number of deaths within one year, compared to a model in which sectors are assumed to be homogeneous. For different parameter configurations that capture the additional social distancing and hygiene activities individuals might engage in voluntarily, we show that infections may decline entirely on their own, simply due to the individually rational reallocation of economic activity: the curve not only just flattens, it gets reversed.

Global economic and financial effects of 21st century pandemics and epidemics

Chang Ma, John Rogers and Sili Zhou

We provide perspective on the possible global economic and financial effects from COVID-19 by examining the handful of similar major health crises in the 21st century. We estimate the effects of these disease shock episodes on GDP growth, fiscal policy, expectations, financial markets, and corporate activity. Simple time-series models of GDP growth indicate that real GDP is 2.6% lower on average across 210 countries in the year of the official declaration of the outbreak and is still 3% below its pre-shock level five years later. The negative effect on GDP is felt less in countries with more aggressive first-year responses in government spending. Consensus forecast data suggests a pessimistic view on real GDP initially that lasts for two months, an effect that is larger for emerging market economies. Stock market responses indicate an immediate negative reaction. Finally, using firm-level data, we find a fall in corporate profitability and employment, and an increase in debt, the last of which is further reflected in higher sovereign CDS spreads.

Visualising and forecasting Covid-19

As an alternative to structural estimates of the SIR model, this note presents reduced-form time series forecasts of the growth in Covid-19 cases s and fatalities d for several countries where a slowdown has set in. Once a daily threshold of d >100 was crossed, daily growth in the initial unchecked phase was around Δln(d) ∈ [0.2,0.3]. For several countries, growth in fatalities as well as registered cases now shows a sustained decline; Italy and Spain report Δln(d) ≈ 0.03. I present updated ETS forecasts of the endpoint to the current epidemic for the countries in the sample, along with predicted fatalities. As a robustness check, forecasts from 31 March alongside later realizations are included. Results are preliminary and subject to daily revision as the situation is still evolving rapidly. The relative success of the method suggests univariate forecasts as a quick way of assessing resource needs and timelines where the epidemic is still ongoing.

Risk taking during a global crisis: Evidence from Wuhan

Di Bu, Tobin Hanspal, Yin Lao and Yong Liu

We conducted a repeated survey on risk taking behavior across a panel of subjects in Wuhan, China – ground zero of the Coronavirus pandemic – before and after the outbreak began. Our baseline survey was administered on October 16th, 2019 among graduate students in Wuhan prior to the COVID-19 outbreak. 47% of the students in our sample returned home to other provinces in China for semester break in early January before the province of Hubei and the city of Wuhan was locked down with strict quarantine orders on 23 January 2020. We administered a follow up survey to the same subjects, capturing their geolocation information on 28 February. We use variation in exposure across different Chinese cities and provinces to measure the impact of the Coronavirus pandemic on subjects’ willingness to take risk. We find that subjects’ allocations of wealth to hypothetical risky investments decrease monotonically based on the strength of their exposure to the pandemic. However, subjects uniformly report substantially lower general preferences for risk regardless of their exposure. Higher levels of exposure leads subjects to reduce beliefs in their own luck and sense of control and in turn, form more pessimistic beliefs on the economy and social conditions. We provide evidence that short-term changes in risk taking may stem more so from changes in beliefs and optimism than from general risk preferences. Our results suggest that more closely held formative experiences have large, negative, and acute effects on economic preferences during a crisis.

The case for universal cloth mask adoption and policies to increase the supply of medical masks for health workers

Universal Cloth Mask Adoption

Jason Abaluck, Judith Chevalier, Nicholas A. Christakis, Howard Forman, Edward H. Kaplan, Albert Ko and Sten H. Vermund

We recommend the immediate universal adoption of cloth facemasks, including homemade masks, and accompanying policies to increase the supply of medical masks for health workers. Universal adoption will likely slow the spread of the Covid-19 virus by reducing transmission from asymptomatic individuals. We provide strongly suggestive evidence from cross-country data that facemask use slows the growth rate of cases and deaths. This complements extant scientific data on mask usage. Our analysis suggests each cloth facemask generates thousands of dollars in value from reduced mortality risk. Each medical mask, when used by a healthcare worker, may generate millions of dollars in value, and policies to encourage greater production prioritised for health workers are urgently needed.

Issue : 4

Aggregate and firm-level stock returns during pandemics, in real time

Laura Alfaro, Anusha Chari, Andrew Greenland and Peter K. Schott

We exploit unexpected changes in the trajectory of pandemics to quantify their effects on aggregate and firm-level stock returns. We find that an unanticipated doubling of predicted infections during the Covid-19 and SARS outbreaks forecasts aggregate equity market value declines of 4% to 11%. Firm returns are sensitive to this information even after accounting for their co-movement with the market, and vary widely both within and across sectors. Our results imply a decline in returns’ reaction to new infections as the trajectory of the pandemic becomes clearer.

A note on efficient mitigation policies

Callum Jones, Thomas Philippon and Venky Venkateswaran

We study the response of an economy to an unexpected epidemic and we compare the decentralised equilibrium with the efficient allocation. Households mitigate the spread of the disease by reducing consumption and hours worked. A social planner worries about two externalities: an infection externality and a healthcare congestion externality. Private agents’ mitigation incentives are too weak, especially at early stages while the planner implements drastic and front-loaded mitigation policies. In our calibration, assuming a CFR of 1% and an initial infection rate of 0.1%, private mitigation leads to a 10% drop in consumption and reduces the cumulative death rate from 2.5% of the initially susceptible population to about 2%. The planner reduces the death rate to 0.2% at the cost of an initial drop in consumption of around 40%.

Why is Covid-19 mortality in Lombardy so high? Evidence from the simulation of a SEIHCR model

The standard SEIR model based on a parameterisation consistent with the international evidence cannot explain the very high Covid-19-related mortality in Lombardy. This paper proposes an extension of the standard SEIR model that is capable of solving the puzzle. The SEIR model features exogenous mortality: once susceptible individuals are first exposed, and then infected, they succumb with a given probability. The extended model inlcudes a hospitlisation process and the possibility that hospitalised patients, who need to resort to an intensive care unit, cannot find availability because the ICU is saturated. This constraint creates an additional increase in mortality, which is endogenous to the diffusion of the disease. The SEIHCR model (H stands for hospitalisation and C stands for constraint) is capable of explaining the dynamics of Covid-19-related mortality in Lombardy with a paramerisation consistent with the international evidence.

The impact of Covid-19 on gender equality

Titan Alon, Matthias Doepke, Jane Olmstead-Rumsey and Michèle Tertilt

The economic downturn caused by the current Covid-19 outbreak has substantial implications for gender equality, both during the downturn and the subsequent recovery. Compared to ‘regular’ recessions, which affect men’s employment more severely than women’s employment, the employment drop related to social distancing measures has a large impact on sectors with high female employment shares. In addition, closures of schools and daycare centers have massively increased child care needs, which has a particularly large impact on working mothers. The effects of the crisis on working mothers are likely to be persistent, due to high returns to experience in the labour market. Beyond the immediate crisis, there are opposing forces which may ultimately promote gender equality in the labour market. First, businesses are rapidly adopting flexible work arrangements, which are likely to persist. Second, there are also many fathers who now have to take primary responsibility for child care, which may erode social norms that currently lead to a lopsided distribution of the division of labour in house work and child care.

Staying at home: Mobility effects of Covid-19

Who Moves Under Lockdown? (1)

Sam Engle, John Stromme and Anson Zhou

We combine GPS data on changes in average distance travelled by individuals at the county level with Covid-19 case data and other demographic information to estimate how individual mobility is affected by local disease prevalence and restriction orders to stay at home. We find that a rise of local infection rate from 0% to 0.003%4 is associated with a reduction in mobility by 2.31%. An official stay-at-home restriction order corresponds to reducing mobility by 7.87%. Counties with larger shares of population over age 65, lower share of votes for the Republican Party in the 2016 presidential election, and higher population density are more responsive to disease prevalence and restriction orders.

Political beliefs affect compliance with Covid-19 social distancing orders

Who Moves Under Lockdown? (2)

Marcus O. Painter and Tian Qiu

Social distancing is vital to mitigate the spread of the novel coronavirus. We use geolocation data to document that political beliefs present a significant limitation to the effectiveness of state-level social distancing orders. Residents in Republican counties are less likely to completely stay at home after a state order has been implemented relative to those in Democratic counties. We also find that Democrats are less likely to respond to a state-level order when it is issued by a Republican governor relative to one issued by a Democratic governor. These results are robust to controlling for other factors including time, geography, local Covid-19 cases and deaths, and other social distancing orders. We conclude that bipartisan support is essential to maximise the effectiveness of social distancing orders.

Issue : 3

Data gaps and the policy response to the novel coronavirus

This note lays out the basic Susceptible-Infected-Recovered (SIR) epidemiological model of contagion, with a target audience of economists who want a framework for understanding the effects of social distancing and containment policies on the evolution of contagion and interactions with the economy. A key parameter, the asymptomatic rate (the fraction of the infected that are not tested under current guidelines), is not well estimated in the literature because tests for the coronavirus have been targeted at the sick and vulnerable, however it could be estimated by random sampling of the population. In this simple model, different policies that yield the same transmission rate β have the same health outcomes but can have very different economic costs. Thus, one way to frame the economics of shutdown policy is as finding the most efficient policies to achieve a given β, then determining the path of β that trades off the economic cost against the cost of excess lives lost by overwhelming the health care system.

Demographic determinants of testing incidence and Covid-19 infections in New York City neighbourhoods

New York City Neighbourhoods

New York City is the hot spot of the Covid-19 pandemic in the United States. This paper merges information on the number of tests and the number of infections at the New York City zip code level with demographic and socioeconomic information from the decennial census and the American Community Surveys. People residing in poor or immigrant neighbourhoods were less likely to be tested; but the likelihood that a test was positive was larger in those neighbourhoods, as well as in neighbourhoods with larger households or predominantly black populations. The rate of infection in the population depends on both the frequency of tests and on the fraction of
positive tests among those tested. The non-randomness in testing across New York City neighbourhoods indicates that the observed correlation between the rate of infection and the socioeconomic characteristics of a community tells an incomplete story of how the pandemic evolved in a congested urban setting.

Economic policy responses to a pandemic: Developing the Covid-19 economic stimulus index

Ceyhun Elgin, Gokce Basbug and Abdullah Yalaman

In this paper, we conduct a comprehensive review of different economic policy measures adopted by 166 countries as a response to the COVID-19 pandemic and create a large database including fiscal, monetary, and exchange rate measures. Furthermore, using principle component analysis (PCA), we construct a COVID-19 Economic Stimulus Index (CESI) that combines all adopted policy measures. This index standardises economic responses taken by governments and allows us to study cross-country differences in policies. Finally, using simple cross-country OLS regressions we report that the median age of the population, the number of hospital beds per-capita, GDP per-capita, and the number of total cases are all significantly associated with the extent of countries’ economic policy responses.

Flight to safety: 2020 Democratic primary election results and Covid-19

James Bisbee and Dan Honig

What is the impact of anxiety on vote choice? Building on a well-documented phenomenon in finance, we posit that voters will exhibit a “flight to safety” by turning toward establishment candidates. We test this theory in the context of the Democratic primary election of 2020 by examining changes in the vote shares of Bernie Sanders, a candidate promising disruptive change. We use the outbreak of the novel coronavirus across both space and time to identify a causal effect of the outbreak on voting. By comparing counties with and without reported cases in their local media market, before and after the outbreak of the virus, we show that COVID-19 resulted in diminished support for Sanders as compared to his support in the 2016 election, and interpret this to be the result of COVID-induced anxiety altering vote choice. We test alternative mechanisms, such as differential changes in turnout by age groups more and less supportive of Sanders, selection effects in which areas less supportive of Sanders were more exposed, and the coincident timing of
the outbreak with the Democratic party rallying around Biden. We find little support for these alternative pathways, bolstering our claim that the results are consistent with a political flight to safety. Our findings suggest an as-yet underappreciated preference for “safe” candidates in times of social anxiety.

Sectoral effects of social distancing

Jean-Noël Barrot, Basile Grassi, and Julien Sauvagnat

The health crisis caused by the outbreak of the Covid-19 virus has led many countries to implement drastic measures of social distancing. By reducing the quantity of labour, social distancing in turn leads to a drop in output which is difficult to quantify without taking into account relationships between sectors. Starting from a standard model of production networks, we analyse the sectoral effects of the shock in the case of France. We estimate that six weeks of social distancing brings GDP down by 5.6%. Apart from sectors directly impacted by social distancing measures, those whose value-added decreases the most are upstream sectors, i.e. sectors most distant from final demand. The same exercise is carried out for other European countries, taking into account national differences in sectoral composition and propensity to telework. Finally, we analyse the economic impact of phasing out social distancing by sector, region or age group.

Measuring the economic risk of Covid-19

Ilan Noy, Nguyen Doan, Benno Ferrarini and Donghyun Park

We measure the economic risk of Covid-19 at a geo-spatially detailed resolution. In addition to data about the current prevalence of confirmed cases, we use data from 2014-2018 to compute measures for exposure, vulnerability, and resilience of the local economy to the shock of the epidemic. Using a battery of proxies for these four concepts, we calculate the hazard and the principal components of exposure and vulnerability to it, and of the economy’s resilience (i.e., its ability to recover rapidly from the shock). We find that
the economic risk of this pandemic is particularly high in most of Africa, the Indian subcontinent, the Persian Gulf, and Southeast Asia. These results are consistent when comparing an ad hoc equal weighting algorithm for the four components of the index, an algorithm that assumes equal hazard for all countries, and one based on an estimated weights using previous aggregated disability-adjusted life years losses associated with communicable diseases.

Issue : 2

Central bank swap lines during the Covid-19 pandemic

Saleem Bahaj and Ricardo Reis

Facing visible strain in dollar funding markets during the Covid-19 pandemic, the Fed lowered the rate on the swap lines it had with five other central banks, and opened new ones in nine other currencies. Some of these were used, some not. We use this variation to show the impact of the swap lines on CIP deviations across currencies. The results confirm the analysis in
Bahaj and Reis (2019): the swap lines put a ceiling on CIP rates only around the time of an auction.

Business disruptions from social distancing

SOCIAL DISTANCING AND BUSINESS

Miklós Koren and Rita Peto

Social distancing interventions can be effective against epidemics but are potentially detrimental for the economy. Businesses that rely heavily on face-to-face communication or close physical proximity when producing a product or providing a service are particularly vulnerable. There is, however, no systematic evidence on the role of human interactions across different lines
of business and about which will be the most limited by social distancing. In this paper we provide theory-based measures of the reliance of US businesses on human interaction, detailed by industry and geographic location. We find that 49 million workers work in occupations that rely heavily on faceto-face communication or require close physical proximity to other workers. Our model suggests that when businesses are forced to reduce worker contacts by half, they need a 12% wage subsidy to compensate for the disruption in communication. Retail, hotels and restaurants, arts and entertainment and
schools are the most affected sectors. Our results can help target fiscal assistance to businesses that are most disrupted by social distancing.

Group testing against Covid-19

Christian Gollier and Olivier Gossner

It is well-known that group testing is an efficient strategy to screen for the presence of a virus. It consists of pooling n individual samples with a single test using RT-PCR. If no individual in the group is infected, the group test is negative. Thus, a single test may reveal this crucial information. We show how group testing can be optimised in three applications to multiply the power of tests against Covid-19: Estimating virus prevalence to measure the evolution of the pandemic, bringing negative groups back to work to exit the current lockdown, and testing for individual infectious status to treat sick people. For an infection level around 2%, group testing could multiply the power of testing by a factor of 20. The implementation of this strategy in the short run requires limited investments and could bypass the current immense shortage of testing capacity.

The propagation of the economic impact through supply chains: The case of a mega-city lockdown to contain the spread of Covid-19

LOCKDOWNS AND SUPPLY CHAINS

Hiroyasu Inoue and Yasuyuki Todo

This study quantifies the economic effect of a possible lockdown of Tokyo to prevent the spread of Covid-19. The negative effect of the lockdown may propagate to other regions through supply chains because of a shortage of supply and demand. Applying an agent-based model to the actual supply chains of nearly 1.6 million firms in Japan, we simulate what would happen to production activities outside Tokyo when production activities that are not essential to citizens’ survival in Tokyo were shut down for a certain period. We find that when Tokyo is locked down for a month, the indirect effect on
other regions would be twice as large as the direct effect on Tokyo, leading to a total production loss of 27 trillion yen in Japan, or 5.3% of its annual GDP. Although the shut down in Tokyo accounts for 21% of the total production in
Japan, the lockdown would result in a reduction in the daily production in Japan of 86% in a month.

Mitigating the work-safety trade-off

Tito Boeri, Alessandro Caiumi, and Marco Paccagnella

How many jobs can be carried out without putting workers at risk of contracting Covid-19? And how many of these jobs can be activated as soon as the most severe restrictions to mobility will be lifted? To which extent do these jobs belong to the chain involved in the war against Covid-19? In this paper, we aim to provide preliminary answers to these questions drawing on the case of Italy, the first Western country to be hit by the pandemic.

Fiscal policy during a pandemic

FISCAL POLICY INSTRUMENTS

I use a dynamic stochastic general equilibrium model to study the effects of the 2019-20 coronavirus pandemic in the US. The pandemic is modelled as a large negative shock to the utility of consumption of contact-intensive services. General equilibrium forces propagate this negative shock to the nonservices and financial sectors, triggering a deep recession. I use a calibrated version of the model to analyse different types of fiscal policies: (i) government purchases, (ii) income tax cuts, (iii) unemployment insurance benefits, (iv) unconditional transfers, and (v) liquidity assistance to service firms. I find
that UI benefits are the most effective tool to stabilize income for borrowers, who are hit the hardest, while savers favour unconditional transfers. Liquidity assistance programs are effective if the policy objective is to stabilize employment in the affected sector.

Issue : 1

Longer-run economic consequences of pandemics

Pandemics: Long-run Effects

Óscar Jordà, Sanjay R. Singh and Alan M. Taylor

How do major pandemics affect economic activity in the medium to longer term? Is it consistent with what economic theory prescribes? Since these are rare events, historical evidence over many centuries is required. We study rates of return on assets using a dataset stretching back to the 14th century, focusing on 15 major pandemics where more than 100,000 people died. In addition, we include major armed conflicts that resulted in a similarly large death toll. Significant macroeconomic after-effects of the pandemics persist for about 40 years, with real rates of return substantially depressed. In contrast, we find that wars have no such effect, indeed the opposite. This is consistent with the destruction of capital that happens in wars, but not in pandemics. Using more sparse data, we find real wages somewhat elevated following pandemics. The findings are consistent with pandemics inducing labor scarcity and/or a shift to greater precautionary savings.

How many jobs can be done at home?

Jonathan Dingel and Brent Neiman

We classify the feasibility of working at home for all occupations. About 34% of US jobs, accounting for 44% of overall wages, can plausibly be performed at home. This share varies considerably across cities and industries. We hope our results are useful for understanding the economic impact of social distancing and formulating policy responses. Our classifications could be easiy applied to other countries.

Measuring the impact of the German public shutdown on the spread of Covid-19

Tobias Hartl, Klaus Wälde and Enzo Weber

We investigate the impact of the German public shutdown from 13 March 2020 on the spread of Covid-19. In a simple model, we search for a trend break in cumulated confirmed Covid-19 cases as reported by the Johns Hopkins University (2020). We identify a trend break on 20 March that is in line with the expected lagged impact of the German policies and which reduces the growth rate by 48.2%. While the growth rate has almost halved, the number of cases is still doubling every 5.35 days.

The unprecedented stock market reaction to Covid-19

Scott R. Baker, Nicholas Bloom, Steven J. Davis, Kyle Kost, Marco Sammon and Tasaneeya Viratyosin

No previous infectious disease outbreak, including the Spanish flu, has impacted the stock market as powerfully as the Covid-19 pandemic. We use text-based methods to develop this point with respect to large daily stock market moves back to 1900 and with respect to overall stock market volatility back to 1985. We also argue that policy responses to the Covid-19 pandemic provide the most compelling explanation for its unprecedented stock market
impact.

Susceptible-infected-recovered (SIR) dynamics of Covid-19 and economic impact

Covid-19 Dynamics and Assets

I estimate the susceptible-infected-recovered (SIR) epidemic model for the novel coronavirus disease (Covid-19). The transmission rate is heterogeneous across countries and far exceeds the recovery rate, which enables a fast spread.
In the benchmark model, 24.4% of the population may be simultaneously infected at the peak, potentially overwhelming the healthcare system. The peak reduces to 5.6% under the optimal mitigation policy that controls the timing and intensity of social distancing. A stylised asset pricing model suggests that the stock price temporarily decreases by 50% in the benchmark case but shows a W-shaped, moderate but longer bear market under the optimal policy.

Economic resilience, globalisation and market governance: Facing the Covid-19 test

Resilience and Governance

The lack of anticipation of a worldwide disruptive event such as the spread of Covid-19, combined with the breakdown of market mechanisms for the most essential products needed to fight the disease, has left the governments of many countries unsure of how to react and has often constrained their ability to make strategic choices. The humanitarian goal of saving as many lives as possible has come, in some countries, at the cost of confining the entire population, considered the only option available given the circumstances. The economic cost of such a solution, which brings the economies of these countries to a standstill and disrupts global value chains, is likely to be followed by several years of economic depression that will dwarf the cost of the 2008 financial and economic crisis. In the light of this experience, this paper revisits some
of the implicit assumptions underlying the design of our economic systems and discusses some of the dilemmas and trade-offs faced during this stressful period. The lessons learned could help us better anticipate or deal with future black swan events.

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