The Future of Money – what I have been reading this week

The Bank for International Settlement published an interesting policy brief on “Covid-19, cash, and the future of payments”. From their takeaways:

“• The Covid-19 pandemic has fanned public concerns that the coronavirus could be transmitted by cash.

• Scientific evidence suggests that the probability of transmission via banknotes is low when compared with other frequently-touched objects, such as credit card terminals or PIN pads….

• ….Looking ahead, developments could speed up the shift toward digital payments. This could open a divide in access to payments instruments, which could negatively impact unbanked and older consumers. The pandemic may amplify calls to defend the role of cash – but also calls for central bank digital currencies.”

Here is the full article:

https://www.bis.org/publ/bisbull03.htm

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Coronavirus: Global Uncertainty related to Coronavirus, Bill Gates, remote work, and international capital flows in the COVID-19 crisis – what I have been reading today

Since I started to carefully study the coronavirus and its associated health and economic consequences in January 2020, I have been reading many news, research articles, and blog posts. I got more and more concerned and I hope that the situation will improve as soon as possible. Let me now regularly share with you some interesting background articles:

The International Monetary Fund (IMF) created a Global Uncertainty Related to Coronavirus (it is at record high at the moment:

Bill Gates (who warned about the dangers of pandemics in the past) is funding new factories for 7 potential coronavirus vaccines:

https://www.businessinsider.com/bill-gates-factories-7-different-vaccines-to-fight-coronavirus-2020-4

Remote work is on the rise. The authors of the following paper find for a nationally representative sample of the US population that of “those previously employed, 34.5% report they were commuting and are now working from home… In addition, 11.2% report being laid-off or furloughed in the last 4 weeks.”

https://john-joseph-horton.com/papers/remote_work.pdf

Giancarlo Corsetti and Emile Marin show that the current developments on international capital flows follow an historical pattern. “In crises, the dollar tends to appreciate – especially against emerging market currencies – and dollar liquidity becomes scarce.”

https://voxeu.org/article/covid-19-crisis-dollar-and-capital-flows

The U.S. Economy – how deep will the recession be? Unfortunately, we do not know yet

As the coronavirus spreads all over the world, it is causing increasing losses of human lives, tragedies, and inconveniences for many people in a growing number of countries. Economic losses are high for a large number of firms and individuals. Governments and central banks are busy implementing various monetary and fiscal policy tools to dampen the negative effects of this partial “lockdown” of the economy. It is still too early to assess the economic consequences of the coronavirus for the United States. It would not be reasonable to publish precise numbers. The economic costs are difficult to quantify and we can only roughly try to assess the economic effects of the various monetary and fiscal stimulus programs. One has to think in rough scenarios.

In brief: under an optimistic scenario, there will a relatively strong recovery of the economy after a severe recession in the first half of the current year. GDP growth in 2020 would be negative at around -3 percent (the growth rate in 2019 was at 2,3 percent; in January of this year, I had expected a growth rate of two percent in 2020). Under a more pessimistic scenario, the recession would be deeper and the recovery modest. Under this more dramatic scenario, we would have a serious economic crisis with a large and persistent drop in consumption and investment, higher unemployment, and growing financial stability risks. Negative economic growth of perhaps -6 percent (or even more) in 2020 would result under this more dramatic scenario. These numbers are not really useful and robust at the moment. Probably, we will have to wait until the beginning of May to get a slightly better picture of what happens to the economy right now.

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Coronavirus: The IMF policy tracker, country responses to the coronavirus economic crisis, and how do we value a statistical life? – what I have been reading today

Since I started to carefully study the coronavirus and its associated health and economic consequences in January 2020, I have been reading many news, research articles, and blog posts. I got more and more concerned and I hope that the situation will improve as soon as possible. Let me regularly share with you some interesting background articles:

This policy tracker of the International Monetary Fund (IMF) provides a useful summary of the most important economic responses that different countries have taken to limit the human and economic impact of the COVID-19 pandemic. The tracker includes 193 economies.

https://www.ft.com/content/e00120a2-74cd-11ea-ad98-044200cb277f

Ricardo Reis, a professor of economics at the London School of Economics, on how countries differ in their response to the coronavirus economic crisis. He argues convincingly that there is no right or wrong way for governments to deal with the financial impact of coronavirus – only trade-offs.

https://www.theguardian.com/commentisfree/2020/apr/03/coronavirus-economic-crisis-financial-impact?CMP=share_btn_tw

In 2016, Fan, Jamison, and Summers wrote an interesting paper on the cost of pandemic influenza risk. They wrote: “In any given year a small likelihood exists that the world will again suffer a very severe flu pandemic akin to the one of 1918. Even a moderately severe pandemic, of which at least 6 have occurred since 1700, could lead to 2 million or more excess deaths. World Bank and other work has assessed the probable income loss from a severe pandemic at 4-5% of global GNI. The economics literature points to a very high intrinsic value of mortality risk, a value that GNI fails to capture. In this paper we use findings from that literature to generate an estimate of pandemic cost that is inclusive of both income loss and the cost of elevated mortality. We present results on an expected annual basis using reasonable (although highly uncertain) estimates of the annual probabilities of pandemics in two bands of severity.”

https://www.nber.org/papers/w22137.pdf

Tim Harford gives a good overview on the value of a statistical life. He argues that “It is clear that we should be willing to pay huge costs to save lives from Covid-19”.

https://www.ft.com/content/e00120a2-74cd-11ea-ad98-044200cb277f

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US jobless rate rises sharply, but it will increase much more

According to data published by the Bureau of Labor Statistics today, the US jobless rate increased to 4.4 percent in March. Total nonfarm payroll employment fell by 701,000. These numbers reflect the early effects of the coronavirus on the U.S. economy. However, the numbers do not yet reflect the full effects that mainly occurred in the end of March. Revised data for March (published in early May) will probably show a much higher increase in the unemployment rate.

https://www.bls.gov/news.release/empsit.nr0.htm

Yesterday, another report by the labor department showed that the number of initial jobless claims jumped to 6.6 million in the week ending March 28.

https://www.dol.gov/sites/dolgov/files/OPA/newsreleases/ui-claims/20200551.pdf

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Coronavirus: Group testing, the OECD calls for a global Marshall Plan, and U.S. jobless claims – what I have been reading today

Since I started to carefully study the coronavirus and its associated health and economic consequences in January 2020, I have been reading many news, research articles, and blog posts. I got more and more concerned and I hope that the situation will improve as soon as possible. Let me regularly share with you some interesting background articles:

  1. Christian Gollier from the Toulouse School of Economics has an interesting proposal regarding “optimal group testing” to enable more economic activity than at the moment while preserving the health of the population at the same time. While further reflections are surely needed (could it be implemented in practise?), it is a promising idea:

https://www.tse-fr.eu/sites/default/files/TSE/documents/doc/by/gollier/group_testing.pdf

2. The Organisation for Economic Cooperation and Developemnt (OECD) has called for a “global Marshall Plan” to counteract the pandemic’s effects. The OECD Secretary General Angel Gurría urges global leaders to act immediately, to (I cite from the OECD):

  • “Recapitalise health and epidemiological systems;
  • Mobilise all macro-economic levers: monetary, fiscal, and structural policies;
  • Lift existing trade restrictions especially on much needed medical supplies;
  • Provide support to vulnerable developing and low-income countries;
  • Share and implement best practices to support workers and all individuals, employed and unemployed – particularly the most vulnerable;
  • Keep businesses afloat, particularly small and medium-sized firms, with special support packages in hardest hit sectors such as tourism.”

What I cited above and more can be found here:

http://www.oecd.org/coronavirus/en/?fbclid=IwAR3psZ-Mq857hSjYDfZdZKy0l0BVA30Cn1b-lppvy0-qNZ_YzvXYOpJKD6w

3. According to data released by the labor department today (April 2), the number of initial jobless claims jumped to 6,6 million in the week ending March 28. The situation on the U.S. labor market is really bad.

https://www.dol.gov/sites/dolgov/files/OPA/newsreleases/ui-claims/20200551.pdf

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A record number of Americans registered last week to claim for jobless benefits

According to data released by the labor department today (April 2), the number of initial jobless claims jumped to 6,6 million in the week ending March 28. The situation on the U.S. labor market is really bad.

https://www.dol.gov/sites/dolgov/files/OPA/newsreleases/ui-claims/20200551.pdf

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Why are infection and fatality rates of coronavirus higher in some countries than in others? An important question, but premature conclusions are not warranted

Some commentators and researchers have argued that high levels of intergenerational interaction (for instance, grandparents, parents, and children living together or in close proximity) are potential contributors to high infection and fatality rates since the start of the coronavirus pandemic. I have been sceptical whether intergenerational interactions are really that relevant. They might be of second order importance, but it seems to me that other factors such as back luck or delayed reactions to the pandemic might be more relevant.

It is surely important to analyze why some countries have higher infection and fatality rates than other countries. However, one should be very careful. There are many measurement issues. Premature conclusions are not warranted.

An interesting comment that discusses this issue and argues that intergenerational interaction might not be that important can be found here:

https://voxeu.org/article/cross-country-correlation-analysis-research-covid-19

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Mitigating the COVID Economic Crisis

How can the economic costs from the global pandemic be mitigated? I highly recommend this free vox eBook edited by Richard Baldwin and Beatrice Weder di Mauro (published on March 18, free but registration is required): https://voxeu.org/content/mitigating-covid-economic-crisis-act-fast-and-do-whatever-it-takes

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The United States is already in a recession

As the coronavirus spreads all over the world, it is causing increasing losses of human lives, tragedies, and inconveniences for many people in a growing number of countries. Economic losses are high for a large number of firms and individuals. Governments and central banks are busy implementing various monetary and fiscal policy tools to dampen the negative effects of this partial “shutdown” of the economy. It is still too early to assess the economic consequences of the coronavirus for the United States. It would not be reasonable to publish precise numbers. The economic costs are difficult to quantify and we can only roughly try to assess the economic effects of the various monetary and fiscal stimulus programs. One has to think in scenarios.

In brief: under an optimistic scenario, there will only be slightly negative GDP growth over the whole year 2020 after a severe, but short recession in the first half of the current year. GDP growth in 2020 would be negative at around minus one percent (the growth rate in 2019 was at 2,3 percent; in January of this year, I had expected a growth rate of two percent in 2020). Under a more pessimistic scenario, the recession would be deeper and the recovery even more modest. Under this more dramatic scenario, we would have a serious economic crisis with a large and persistent drop in consumption and investment, higher unemployment, and growing financial stability risks. Negative economic growth of around -4,0 percent (or even more) in 2020 would be conceivable under this more dramatic scenario.

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