Covid Economics - Issue 72

We evaluate the implications of relaxing the Supplementary Leverage Ratio during the COVID-19 market disruption for bank balance sheet composition and credit provision. To the best of our knowledge, we are the first to causally identify the effect of the SLR regulation change on bank level outcomes. We find that the relaxation may have eased Treasury market liquidity by allowing banks to hold modestly greater inventories of Treasuries, and further allowed for a significant expansion of traditional bank credit. Our findings suggest that this risk-invariant leverage ratio was binding for banks during COVID-19, weakly affected bank liquidity provision in Treasury markets, and strongly affected banks' portfolio composition across asset classes, amounting to a shift of banks' loan supply schedules. Thus, we highlight that countercyclical relaxation of uniform leverage constraints can increase bank credit provision during economic downturns. Given the binding nature of the SLR, the relaxation of this constraint may be more effective than other countercyclical measures in allowing banks to extend credit.

Using aggregate-level data on Japanese multinational corporations (MNCs) in major host countries and regions, this paper investigates the impact of COVID-19 on global production and supply chains with a focus on East Asia. I use the numbers of COVID-19 cases and deaths as measures of the impact of the pandemic. I find that the pandemic had substantial impacts on the performance (sales, employment, and investment) of Japanese MNCs and global supply chains (exports to Japan and exports to third countries) in Q1–Q3 2020. China recovered quickly in Q2 and grew in Q3, whilst the countries of the Association of Southeast Asian Nations and the rest of the world had still not fully recovered in Q3 2020. Importantly, lockdown and containment policies in host countries had large negative impacts on the sales and employment of Japanese MNCs. In contrast, I did not find positive effects of economic support policies on firm performance. Interestingly, whilst the firm expectations and business plans of Japanese MNCs were negatively affected by the COVID-19 pandemic, their business confidence increased with strong overall government policy responses in host countries in Q1 2020.

In this paper, we shed light on the impacts of the COVID-19 pandemic on the labor market, and how they have evolved over most of the year 2020. Relying primarily on microdata from the CPS and state-level data on virus caseloads, mortality, and policy restrictions, we consider a range of employment outcomes—including permanent layoffs, which generate large and lasting costs—and how these outcomes vary across demographic groups, occupations, and industries over time. We also examine how these employment patterns vary across different states, according to the timing and severity of virus caseloads, deaths, and closure measures. We find that the labor market recovery of the summer and early fall stagnated in late fall and early winter. As noted by others, we find low-wage and minority workers are hardest hit initially, but that recoveries have varied, and not always consistently, between Blacks and Hispanics. Statewide business closures and other restrictions on economic activity reduce employment rates concurrently, but do not seem to have lingering effects once relaxed. In contrast, virus deaths—but not caseloads—not only depress current employment, but produce accumulating harm. We conclude with policy options for states to repair their labor markets.

The Covid-19 Pandemic led to changes in expenditure patterns that can introduce significant bias in the measurement of Consumer Price Index (CPI) inflation. Using publicly-available data on card transactions, I update the official CPI weights and re-calculate inflation with Covid consumption baskets. I find that the US CPI underestimated the Covid inflation rate, as consumers spent relatively more on food with positive inflation, and less on transportation and categories experiencing deflation. The bias peaked in May, when US Covid annual inflation was 0.95% compared to just 0.13% in the CPI and low-income households were experiencing nearly twice as much inflation as those at the top of the income distribution. I find similar evidence of higher Covid inflation in 12 of 19 additional countries.

The COVID-19 outbreak and the measures to contain the virus have caused severe disruptions to labor supply and demand worldwide. Understanding who is bearing the burden of the crisis and what drives it is crucial for designing policies going forward. Using the U.S. monthly Current Population Survey data, this paper analyzes differences in employment responses between men and women. The main finding is that less educated women with young children were the most adversely affected during the first nine months of the crisis.The loss of employment of women with young children due to the burden of additional childcare is estimated to account for 45 percent of the increase in the employment gender gap, and to reduce total output by 0.36 percent between April and November 2020.