Pandemics and Systemic Financial Risk
Howell E. Jackson (Harvard Law School) and Steven L. Schwarcz (Duke U.)
April 19, 2020
The coronavirus has produced a public health debacle of the first-order. But the virus is also propagating the kind of exogenous shock that can precipitate – and to a considerable degree is already precipitating – a systemic event for our financial system. This currently unfolding systemic shock comes a little more than a decade after the last financial crisis. In the intervening years, much as been written about the global financial crisis of 2008 and its systemic dimensions. Additional scholarly attention has focused on first devising and then critiquing the macroprudential reforms that ensued, both in the Dodd-Frank Act and the many regulations and policy guidelines that implemented its provisions. In this essay, we consider the coronavirus pandemic and its implications for the financial system through the lens of the frameworks we had developed for the analysis of systemic financial risks in the aftermath of the last financial crisis. We compare and contrast the two crises in terms of systemic financial risks and then explore two dimensions on which financial regulatory authorities might profitably engage with public health officials. As we are writing this essay, the pandemic’s ultimate scope and consequences, financial and otherwise, are unknown and unknowable; our analysis, therefore, is necessarily provisional and tentative. We hope, however, it may be of interest and potential use to the academic community and policymakers.

Income and Wealth Shocks and Expectations during the COVID-19 Pandemic
Tobin Hanspal (WU Vienna University of Economics and Business)
April 15, 2020
In early April 2020 we conducted a survey on a representative sample of more than 8,000 US households to study the effect of the coronavirus crisis on household income and retirement wealth, households’ expectations about the recovery, and the impact of the shock on individuals’ economic choices. Wealth shocks are large across the population, but more pronounced for middle-age households and those higher in the wealth and income distributions. This contrasts with income shocks, which are stronger for younger households and those in lower income and wealth quintiles. Expectations about household spending are affected by income shocks, but not by financial wealth shocks. Both wealth and income shocks are associated with upward adjustments in expectations about household debt, desired working hours, and retirement age. Finally, respondents expect the recovery of the stock market to occur more quickly than for previous stock market crashes and beliefs on the duration are strongly correlated with expectations about own wealth, debt, and labor market activity.

Accounting for the Unaccountable – Perspectives on the Economic Effects of the Coronavirus 19 Pandemic
Steven Salterio (Queen’s University)
April 17, 2020
What will be the economic effects of the Coronavirus 19 Pandemic of 2020? Will it be a blip on the screen or a lead-in to a full-blown recession or even a new depression? In trying to answer these questions, the silo-based nature of academic research can be frustrating. I attempt to answer these questions based on a variety of evidence drawn from economic history (e.g., the “Spanish flu” of 1918-19), pandemic economic models at several levels of abstraction (i.e., worldwide, regional, and country), and cost effectiveness of pandemic interventions (e.g. schools closures). The sources of the evidence vary from current “hot of the press” working papers and “think tank” papers; to published peer reviewed research in health economics and policy, crisis management, and economics; industry based models (e.g., Swiss re.) and estimates regulatory agencies (e.g. US Federal Reserve). I summarize and interpret what prior research says in addition to identifying the key unknowns that could magnify or dilute the predicted effects.
My interpretation of that evidence is that the economic costs from the coronavirus pandemic will cause a one-year decline in global Gross Domestic Product (GDP) of 3.7% to 6%. Consistent with that range is an up to one-quarter decline of 21% in GDP. The average predicted time to recovery based on the evidence reviewed is one to two years. These estimates, based on economic history and pandemic models, are consistent with recent estimates of economic effects of the current pandemic of 3.4% (Bloomberg for USA) to 6.0% (IMF for developed economies).

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COVID-19: Economic Recession or Depression?
Mario Arturo Ruiz Estrada (University of Malaya)
April 14, 2020
This paper is interested to introduce a new macroeconomic indicator to evaluate the impact of any massive pandemic such as COVID-19 on the world economy performance in the short run (1 year) and long run (10 years). The new macroeconomic indicator is entitled “The Economic Uncontrolled Desgrowth from COVID-19 (-δCOVID-19).” In fact, the new macroeconomic indicator assumes that always COVID-19 is going to be the major factor to generate a large economic leakage on the final GDP formation anytime and anywhere. Additionally, the same paper is willing to evaluate two post-COVID-19 possible scenarios. The first scenario: if COVID-19 is going to generate a short economic recession, then the world economy gross domestic product can delay between two and three years. The second scenario: if COVID-19 is going to produce a large economic depression, then the world economy gross domestic product can take easily between five and ten years such as the case of the world great depression of 1928. From now, the economists need to decide between two possible choices to solve these two types of economic crisis (recession or depression): The first choice is the uses of the classical economic policies –fiscal or monetary- from past experiences (Keynesians and Monetarists). The second choice is the creation of new and innovative polices approaches to reduce the COVID-19 damage under the support of new theoretical and methodological approaches.

On the Economic Impact of Social Distancing Measures
Nabil Kahalé (ESCP Business School)
April 17, 2020
We study the economic impact of social distancing measures aimed at lowering the proportion of infected individuals to a predetermined level. Using simple economic and epidemiology models, it is proven that strict social distancing measures diminish the aggregate loss in the economic output during the containment period. This can be explained by the fact that, when strict social distancing measures are enforced, a short containment period is needed to restrain the proportion of infected individuals to a given level. It is also proven that early interventions diminish the aggregate economic loss. A numerical example shows that aggressive and early social distancing measures can significantly reduce the aggregate economic loss.

The Effect of Coronavirus Spread on Stock Markets: The Case of the Worst 6 Countries
Nader Alber (Ain Shams University)
April 16, 2020
This paper attempts to investigate the effects of Coronavirus spread on stock markets. Coronavirus spread has been measured by cumulative cases, new cases, cumulative deaths and new deaths. This has been applied on the worst 6 countries (according to number of cumulative cases), on daily basis over the period from March 1, 2020 till April 10, 2020. Coronavirus spread has been measured by numbers per million of population, while stock market return is measured by Δ in stock market index.
Results indicate that stock market return seems to be sensitive to Coronavirus cases more than deaths, and to Coronavirus cumulative indicators more than new ones. Besides, robustness check confirms the negative effect of Coronavirus spread on stock market return for China, France, Germany and Spain. However, these effects haven’t been confirmed for Italy and United States.

Misinformation During a Pandemic
Leonardo Bursztyn (University of Chicago), et al.
April 19, 2020
We study the effects of news coverage of the novel coronavirus by the two most widely-viewed cable news shows in the United States – Hannity and Tucker Carlson Tonight, both on Fox News – on viewers’ behavior and downstream health outcomes. Carlson warned viewers about the threat posed by the coronavirus from early February, while Hannity originally dismissed the risks associated with the virus before gradually adjusting his position starting late February. We first validate these differences in content with independent coding of show transcripts. In line with the differences in content, we present novel survey evidence that Hannity’s viewers changed behavior in response to the virus later than other Fox News viewers, while Carlson’s viewers changed behavior earlier. We then turn to the effects on the pandemic itself, examining health outcomes across counties. First, we document that greater viewership of Hannity relative to Tucker Carlson Tonight is strongly associated with a greater number of COVID-19 cases and deaths in the early stages of the pandemic. The relationship is stable across an expansive set of robustness tests. To better identify the effect of differential viewership of the two shows, we employ a novel instrumental variable strategy exploiting variation in when shows are broadcast in relation to local sunset times. These estimates also show that greater exposure to Hannity relative to Tucker Carlson Tonight is associated with a greater number of county-level cases and deaths. Furthermore, the results suggest that in mid-March, after Hannity’s shift in tone, the diverging trajectories on COVID-19 cases begin to revert. We provide additional evidence consistent with misinformation being an important mechanism driving the effects in the data. While our findings cannot yet speak to long-term effects, they indicate that provision of misinformation in the early stages of a pandemic can have important consequences for how a disease ultimately affects the population.

More Than Words: Leaders’ Speech and Risky Behavior during a Pandemic
Nicolas Ajzenman, Getulio Vargas Foundation (FGV), et al.
April 22, 2020
How do political leader’s words and actions affect people’s behavior? We address this question in the context of Brazil by combining electoral data and geo-localized mobile phone data for more than 60 million devices throughout the entire country. We find that after Brazil’s president publicly and emphatically dismisses the risks associated with the COVID-19 Pandemic and advises against isolation, social distancing measures of citizens in pro-government localities reduce relative to those places in which his support is weaker, while pre-event effects are insignificant. The impact is large and robust to different empirical model specifications. We also find suggestive evidence that this impact is driven by localities with relatively higher levels of media penetration.

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