World trade experienced a sudden, severe, and synchronised collapse in 2008 the steepest drop in recorded history, and the deepest fall since the Great Depression. This column argues that 2020 will show a trade collapse that is far larger since the ‘COVID concussion‘ is both a demand shock and a supply shock while the 2008-09 collapse was driven mostly by a demand shock. Key learnings from the last Great Trade Collapse are highlighte
When Covid-19 wasn‘t even on the radar of most policymakers, Warwick McKibbin of ANU used his experience from previous pandemics to create seven scenarios for its impact. All implied a major shock to the global economy. Tim Phillips asks him how his model was able to capture the nature of Covid-19, and which policymakers listened to the warning. Read about McKibbin‘s scenarios in Chapter 3 ofEconomics in the Time of Covid-19.
There has been a lot of discussion in recent weeks on whether an EU-wide fiscal policy response to COVID-19 should include common liability for the additional debt that such a response would imply. This column lays out the arguments in favour of such an approach arguments that go beyond economic ones.
Evaluating the economic impact of ‘social distancing‘ measures taken to arrest the spread of COVID-19 raises a fundamental question about the modern economy: How many jobs can be performed at home? This column describes the results of classifying the feasibility of working at home for all occupations. In the US, 37% of jobs can plausibly be performed at home.
The gravity and urgency of the entwined COVID-19 public health and economic crises must be reflected in an unprecedented response. In this letter world leaders, leading global health experts and economists outline what is needed. The two crises require urgent specific measures that can be agreed on with speed and at scale. Both require world leaders to commit to funding far beyond thecurrent capacity of our existing international institutions. Th
Due to the global spread of COVID-19, Austria, like many other countries, is facing a massive increase in unemployment. To mitigate the skyrocketing number of unemployed persons, social partners have developed a new model of subsidised short-time work that could become an international role model. The Austrian model allows a temporary reduction in working hours up to 90% while maintaining the employment relationship and granting almost full publi
The spread of COVID-19 and the ensuing drastic lockdowns are placing economies and labour markets worldwide in a state of emergency. Governments are struggling to safeguard jobs and firms. Short-time work and comprehensive liquidity support for businesses and the self-employed are some measures being used. This column illustrates the consequences of a substantial hiring stall on unemployment and proposes hiring subsidies directly reduce firms&ls
European governments are searching for ways to abate the sudden economic shock from the coronavirus pandemic. This column proposes four ideas on lessening the negative effects of the sudden economic shock on private businesses. (1)Governments may defer or waive the collection of corporate and value-added taxes to enhance liquidity. (2)Credit bureaus and registries give governments data on which businesses to target with lines of credit or other f
COVID-19‘s economic impact on crumbling GDPs, collapsing tax revenues and ballooning fiscal deficits will be much larger than what has been reported thus far.Any hesitation in throwing everythingbut the kitchen sink at the health, employment, state aid and financial rescue interventions that are neededwill literally kill citizens and destroy the economy. To combat COVID-19, central banks, including the ECB, must cross the Rubicon of monetar
The COVID-19 pandemic is turning into a global recession probably the biggest drop in economic activity since the Great Depression of the 1930s. This column uses over 3 million earnings observations drawn from more than 400,000 UK workers between 1975 and 2016 to identify groups of workers who are most exposed to aggregate risk. This findings suggest that young male workers at small firms could see earnings losses of 8% to 9%, with older women a
As the European economy experiences a severe economic contraction as a result of the coronavirus lockdowns, the IGM Forum at Chicago Booth invited its panel of leading European economists to express views on Europe‘s economic policy response to the COVID-19 crisis: onwhether the economic benefits from lockdowns are likely to outweigh the costs over the medium term; andon the desirability of a euro area fiscal policy response to supplement n
Due to COVID-19, large parts of the world economy are being put on hold by government fiat. We argue that on efficiency as well as equity grounds the state should generously support not only labour but also capital costs, the latter through ex ante partially reimbursable, rapidly disbursed ‘corona loans‘. The exact criteria for reimbursement can be determined ex post depending primarily on the sector-level severity of lockdown-indu
Member states are currently debating how to finance the fight against COVID-19.As time is pressing, practical and readily implementable solutions are needed now. Using the ESM to provide the funds needed is a reasonable and workable way forward. Italy, Spain and other states would benefit from using the ESM access to AAA funding to reinforce their debt dynamics: acombination ofloan size, maturity and interest rates would strengthen debt sustainab
The European Commission proposes a pan-European support for short-time work arrangements (SURE). This column discusses the relationship between this proposal and the idea of a European unemployment re-insurance scheme, to which the Commission also refers in its Communication on SURE. It sketches the merits of SURE and signals some caveats.
Turkey is a late-comer to the global scene of the COVID-19 crisis, yet it has exhibited an alarming rate of spread in the first weeks of its exposure to the virus. This column offers a discussion of the heterogenous risks associated with the precarious lives of the millions of Syrian refugees in the country. These risks harbour the danger of vicious pandemic cycles with ripple effects. Turning a blind eye to the condition of the Syrian refugees i
There are now several proposals for complementing the vigorous decision of the ECB to launch a mega ‘pandemic emergency purchase programme‘ with fiscal and financial initiatives at the European level. These proposals sometimes overlap, which is a good sign of convergence. This column argues that they are also largely complementary to one another. Hence, it calls for a multi-instrument approach that would jointly achieve three objectiv
The countries hit hardest by the COVID-19 crisis already have too much debt. Lending from the European Stability Mechanism or via Coronabonds would add to that debt, potentially making it unsustainable. This column suggests that European solidarity shouldtake the form of transfers, not credit. A substantial transfer could be organised via the EU budget simply by exempting the weakest countries from their contributions to the EU budget for the dur
To ensure that all EU countries can do what is necessary to fight the economic fallout of the pandemic, the fiscal costs of this crisis must be shared. This columnproposes that the EU give member states 440 billion in grants to support health care, liquidity to the private sector, short-time work schemes and stimulus packages. The EU should raise the funds in bond markets backed by guarantees. It also shows how this is could work under EU law.
The emergency measures in place to absorb the COVID-19 shock need to be supplemented by OMT unless leaders agree to create a euro area safe asset and fiscal capacity. This column employs an empirically calibrated model to show that OMT is second-best to the creation of a safe asset and fiscal capacity at the centre, but would still be a powerful means to mitigate the economic impact of the crisis.
The year 2020 marks the 30thanniversary of the reunification of West and East Germany. German separation in 1949 into the Federal Republic of Germany and the German Democratic Republic and its reunification in 1990 offer a unique setting of a rather unexpected introduction and termination of a communist regime in one part of a previously and afterwards unified country. However, this column argues that this period of German history is not a comple
The actions and policies taken to control the spread of COVID-19 in the US have had the effect of engineering acontrolled,partial and temporary shutdownof certain sectors of the economy. This column argues thatthis organised ‘throttling down‘ radically changes the way we need to think about and gauge the health of the US economy in the near term. The goals of macroeconomic policy will need to be very different, in some ways the opposi
The massive fiscal packages being deployed in Europe raise issues of financing. Economists have proposed three main models. This column offers a pragmatic legal perspective on the options, focusing on their compatibility with EU Law, the ESM Treaty, and German Constitutional Law. It argues that, from a practical legal standpoint, the use of the ESM is preferable to issuing Coronabonds, because it is more legally secure and could be implemented mo
The bold reactions by central banks to the COVID-19 crisis have been called ‘unprecedented‘. But the global economy has experienced real shocks before, with monetary authorities implementing similarly assertive policies. This column reviews three relevant historical precedents. In each case, intervention targeted the private rather than public sector, and succeeded in preventing an economic collapse. The larger difficulty lay in findi
Decisions about whether to clamp down or ease up on social distancing hinge on how deadly and widespread is the novel coronavirus. But as this column discusses, neither is known because tests for the virus have focused on those showing severe symptoms and at high risk. If the virus is still not widespread, then it is deadly and there is still time to implement measures more severe than those currently in place in the US to suppress it until a v