Covid Economics - Issue 80

This paper estimates the impact of University reopenings in Scotland in Autumn 2020 on COVID-19 cases in Scottish neighbourhoods. We geolocate all student halls in Scotland, and merge this data with neighbourhood-level case data. We employ a local differences-in-differences strategy and tackle two research questions. First, we ask what was the impact of the start of semester on cases in the student neighbourhoods? Next, we turn our attention to the spillover of cases in the nearby communities to student neighbourhoods. University semester start dates in Scotland are staggered over the month of September, and we deal with this by focusing on each start cluster, as well as implementing the Callaway and Sant’Anna (2020) estimator. We find a substantial and persistent increase in cases in areas containing halls and evidence of persistent spillovers. These effects are linked to the group of Universities that started on 14th September, which include large Universities located in the major urban areas. The cases began to rise on 21st September, with 100 extra cases per 100,000 per day, and peaked a week later with 400 additional cases per 100,000 per day, after which they started declining, but persist until the Autumn tightening of coronavirus restrictions bit in November, two months after the restrictions were enacted. Our results invite a re-think of how close contact activities may safely resume.

The early COVID-19 pandemic literature focused on the conflict between lives and livelihoods. But the cross-country evidence reveals that across countries high mortality rates were often associated with large GDP contractions. We show that the presumed trade-off was associated with lockdowns as the primary instrument of containment. Early transition from lockdowns to testing-tracing-isolation-based containment softened the trade-off within countries and explains the absence of a trade-off across countries. We find that testing had positive indirect effects on growth and perhaps even positive direct effects. By allowing countries to relax shutdowns without compromising on containment, testing could have indirectly contributed to about a 0.6 percentage point boost in growth. By infusing greater confidence in people to step out and engage in economic activity, testing could have added another 0.6 percentage point to growth. As the world struggles to scale up vaccination in the face of new waves and variants, continued emphasis on testing could help limit infection without recourse to costly lockdowns.

In this article, we propose the hypothesis that liquidity constraints may delay or even prevent individuals infected with COVID-19 from seeking medical help. If this is the case, a cash transfer can directly increase the demand for medical care. We evaluated it empirically in the context of the Emergency Aid (EA) implementation, a large-scale cash transfer program in Brazil. We used the program’s implementation calendar along with a Regression Discontinuity in Time (RDiT) to assess the causal effects of EA on the search for the health system. Consistent with our hypothesis, we estimate that the transfer decreased the time to search for the health system by 13% and increased COVID-19 hospitalizations by 0.4%. We also estimate that the impact of the cash transfer on hospitalizations decreases with time, which is consistent with the liquidity constrain hypothesis.

How banks managed the COVID-19 pandemic shock? The eruption of the financial crisis in 2007 evolved to a crisis of banks as liquidity providers (Acharya and Mora, 2015). The COVID-19 pandemic shock was associated with a surge in households’ deposits and a subsequent liquidity injection by the Federal Reserve. We show how the pandemic affected banks’ liquidity management and therefore by extension, the creation of new loans. We empirically evaluate the creation and management of banks’ liquidity through three well established mechanisms: market discipline (supply-side), internal capital markets (demand-side), and the balance-sheet mechanism which captures banks’ exposure to liquidity demand risk. We provide novel empirical evidence showing that households increased savings as a precaution against future declines in their income. Also, depositors did not discipline riskier banks, and the internal capital market mechanism was not in work during the pandemic. Hence, weakly-capitalized banks were not forced to offer higher deposit rates to stem deposit outflows. Furthermore, weakly-capitalized banks increased lending in the first phase of the pandemic, while in the midst of the pandemic, they cut back new lending origination and increased their exposure to Fed’s liquidity facilities. Well-capitalized banks, on the other hand, increased lending in line with the increase in their deposits. Banks with higher exposure to liquidity risk were vulnerable to deposit outflows and increased their exposure in Fed’s liquidity facilities significantly more than low-commitments’ exposed banks.

We develop a utilitarian model to find the maximum reduction in GDP that a representative agent would be willing to accept in the current period to avoid all deaths associated with COVID-19. We discover that the answer changes with the adoption and compliance of universal mask mandates in the United States (US). In the absence of a mask mandate, we determine that the representative agent would be willing to reduce GDP by 30% (approximately $5.7 trillion USD using 2019 levels). With mask mandates and strong compliance, the answer changes to 21% (approximately $4.0 trillion USD). This represents a $1.7 (USD) trillion improvement in the agent’s willingness to trade-off GDP and COVID-19 deaths, attributed to how mask mandates reduce the death rate faced by the representative agent.

This study investigates empirically the effects the new COVID-19 virus has had on European air quality. We focus on 31 European countries and three air pollutants, namely $NO_2$, $PM_{10}$, and $PM_{2.5}$ and we start with a comparison of the air pollution levels before and after the pandemic, focusing on the years 2018-2019 on one side and 2020-2021 on the other. We find that the level of each pollutant dropped significantly after the beginning of the virus. In addition, we present an individual country analysis on how new monthly COVID-19 cases affect each pollutant for the years 2020 to 2021 and finally we present a fixed effects panel data analysis for the same years for the whole of Europe. We also consider how air pollution in earlier periods may have affected the spread of COVID-19 through its negative health effects. We conclude that the measures taken to control the spread of the COVID-19 virus did not only have negative impacts (as in the economy, tourism and other aspects) but they also had some positive effects mainly on the environment by reducing air pollution emissions due to restrictive government policies pursued to contain the spread of the virus. However, it is also clear that previous air pollution levels have acted as an important factor in explaining the COVID-19 spread due to their negative effects on health.

Fan support has often been considered to be a main driver of the home advantage in sports. Using the natural experiment of ghost games during the COVID-19 pandemic in German professional soccer, we test this claim. Indeed, we identify a reduction in the home performance - though with much heterogeneity across leagues. We moreover observe the home advantage to recover over time. In analysing whether betting markets anticipated this drop in the home advantage and its recovery, we test the efficient market hypothesis. We find that betting odds do not properly reflect the effect of ghost games regarding changes in the home advantage. Furthermore, we present evidence for a slow to non-existent adaptation process with respect to new match results, indicating a lack of semi-strong efficiency. Based on these findings, we show how simple betting strategies could have exploited the discussed phenomenon.