Podcast: Macro Waves
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The Covid-19 pandemic: stress testing the supply side 4/17/2020
The Covid-19 pandemic shows that the supply side warrants greater attention when conducting macroeconomic analyses. Very long global value chains may be optimal from a cost and price perspective, but operationally may be very complex and, in particular, fragile. A more resilient supply side comes with a cost, both at the micro and macro level. Solving this trade-off in a market economy is difficult, which, to some degree, leaves a role for public policy.
Huge jump in uncertainty acts as an additional drag on activity 4/17/2020
The Covid-19 pandemic has caused a jump in most of our uncertainty indicators. The media coverage based indicator is now at a record high. After stabilising at a high level, uncertainty of German companies has increased further whereas it has seen a big jump for US businesses. The behaviour of geopolitical risk is an exception...
Will the Covid-19 shock lead to a significant increase in the inflation rate ? 4/17/2020
There is no doubt that the Covid pandemic will lead to a short but deep world recession. However, the effect on inflation is unclear. If in the short term, many observers expect disinflationary bias, the medium-term inflation outlook is more ambiguous.
Hospital capacity and ageing populations 4/15/2020
Over the past decennia, hospital capacity has been gradually reduced in most OECD countries, as major health care innovations have resulted in a gradual shift towards more extra-muros care. Nevertheless, countries with the oldest populations such as Japan and Germany have maintained a large hospital capacity. In Germany, the number of acute beds is two to three times larger than in some other major countries such as France, the UK, and Italy. In that respect, South Korea is an outlier by combining a large hospital capacity with a relatively young population. In the current Covid-19 outbreak, having a large hospital capacity is a clear advantage. Fortunately, some countries have been able to increase their capacity of intensive care beds rapidly. Moreover, hospital capacity has been better used by transporting patients from overstretched regions to those with less Covid-19 patients. Thus, Germany has been able to receive French patients to relieve the hospitals in the eastern part of France. Hospital capacity is only one aspect of the current crisis. A country’s resistance to the virus is for an important part also determined by health care policies such as the availability of personal protective equipment, testing capacity and universal access to the health system.
COVID-19: Key measures taken by governments and central banks 4/15/2020
Major economic policy responses have been introduced to try to attenuate the impact of the Covid-19 pandemic on the economy. This document reviews the key measures taken by central banks and governments in a large number of countries as well as those taken by international organisations. It includes measures that were introduced through 10 April. It will be updated regularly.
COVID-19: Key measures taken by governments and central banks 4/9/2020
Major economic policy responses have been introduced to try to attenuate the impact of the Covid-19 pandemic on the economy. This document reviews the key measures taken by central banks and governments in a large number of countries as well as those taken by international organisations. It includes measures that were introduced through 3 April. It will be updated regularly.
Sudden stop to be followed by a gradual, uneven recovery 4/8/2020
The COVID-19 pandemic has caused a sudden stop in an increasing number of countries. This in turn had led to international spillovers via a decline in foreign trade and an increase in investor risk aversion triggering a global rush for dollar liquidity and a surge in capital outflows from developing economies. A forceful reaction has followed in major economies in terms of monetary and fiscal policy in an effort to attenuate the impact of the pandemic. The near-term dynamics of demand and activity will entirely depend on the length and severity of the lockdown. Once the lockdown has ended, the recovery is likely to be gradual and uneven and policy will have to shift from pandemic relief to growth-boosting measures, thereby putting additional pressure on public finances.  
PMIs confirm the collapse in global economic activity 3/25/2020
The PMI indices published this week give an early insight into the scale of the economic shock from Covid-19. The composite indices for Japan (35.8), Germany (37.2), France (30.2), the UK (37.1) and the US (40.5) all slumped in March. The euro zone composite PMI was the lowest ever recorded at 31.4. The deterioration was particularly marked for the sub-indices relating to employment and orders for goods and services. Figures for April, whilst remaining at historically low levels, are expected to show increasing divergence between the regions. In East Asia, internal demand should start to pick up, as activity starts to normalise in China. Conversely, the epidemic is spreading more rapidly in the US, India and Africa; meanwhile, many European countries remain in lock-down.
The covid-19 epidemic economic consequences: pervasive uncertainty, delayed recovery 3/12/2020
The coronavirus epidemic represents a combination of a demand, a supply and an uncertainty shock. This has knock-on effects on the price of oil and on financial conditions which in turn should end up acting as an additional drag on growth. The huge drop in the price of oil following the absence of an agreement amongst the OPEC+ countries on further production cuts, makes this worse. It hits the producer countries, increases the financial pressure on energy companies, in particular those which are highly indebted, whereas the reaction on the demand side will be muted due to the epidemic and lack of visibility. The timid improvement of business survey data at the end of 2019 has been stopped. Recent data show a very significant deterioration in China, Hong Kong. Elsewhere, the reaction has, on the whole, been limited, but this is not expected to last. The big drop in the price of oil complicates matters further. The Federal Reserve is back in (aggressive) easing mode, the Bank of England has followed and the ECB is expected to ease as well. Several governments have taken various, very targeted policy measures. We should expect more is to follow. When the peak of the epidemic will have been passed and the international propagation halted, the rebuilding of inventories as well as some pent-up demand should support growth. A very accommodative monetary environment should also help. However, the timing of the recovery entirely depends on how he epidemic evolves.
The cryptocurrency economy 3/11/2020
Depending on the source, estimates of the number of ‘cryptocurrencies’ vary between 1,600 and 3,000. These crypto-assets struggle to fulfil the three economic functions of money, and so cannot be considered as such. Although their fairly modest uptake currently limits their economic impact, increased use could create risks in the transmission of monetary policy, money creation and financial stability. Several central banks are looking at the introduction of a ‘central bank digital currency’ (CBDC) in response to these challenges. However, far from being simply a substitute for private cryptocurrencies, these CBDCs would carry specific risks in terms of financial stability, most notably that of a ‘digital bank run’. We believe that their possible introduction, and the associated details, will require meticulous analysis.

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