Covid Economics - Issue 81

This study documents firms’ subjective uncertainty during the COVID-19 crisis in Japan using data from an original survey and publicly available government statistics. The contributions of this study are (1) the measurement of firms’ uncertainty regarding their mid-term economic outlook as subjective confidence intervals, and (2) the comparison of firms’ subjective uncertainty during the COVID-19 crisis with that of the Global Financial Crisis by using readily available official statistics. The results indicate that firms’ subjective uncertainty increased substantially after the outbreak of the COVID-19 pandemic. The elevation of subjective uncertainty has been far more significant compared with the period of the Global Financial Crisis, although the deterioration of economic outlook during the COVID-19 crisis has been smaller. The COVID-19 crisis is characterized as an unprecedented uncertainty shock.

Using unique monthly panel data (IAB-HOPP) covering the immediate post lockdown period from June to August 2020, we investigate opposing claims of widening/closing the gender gap in parental childcare during the COVID-19 pandemic in Germany. We consider pre-pandemic division as a reference point and provide dynamics rather than snapshots. Our results suggest a slight shift toward a more egalitarian division in June that, however, faded out in subsequent months. Starting from a fairly “traditional” pre-pandemic childcare division, the lockdown stimulus was not nearly strong enough to level the playing field. Subgroup analysis differentiating between individual lockdown-specific work arrangements shows that the drivers of the observed shift were mothers with relatively intense labour market participation who cannot work from home. Fathers’ work arrangement instead did not play a significant role. We conclude that the shift emerged out of necessity rather than opportunity, which makes it likely to fade once the necessity vanishes.

Beyond showing scientifically masks block virus transmissions, what else is needed before mask mandates are called for? I endogenize mask-wearing in a model in which non-altruistic players know a mask protects people around the wearer more than it protects the wearer herself. The strategic interactions among people hinges on a proxy of population density, which determines whether mask-wearing behaviours are discouraged by free-riding or mutually reinforced by strategic complementarity. The existence of multiple equilibria under some parameter space explains why polar opposite mask-wearing behaviours can be observed among crowded cities that are not much different from one another. Mask mandates are shown to work precisely when they refine equilibrium away from the socially inferior one. While social and private incentives of mask-wearing always diverge, the model gives the specific conditions under which mask mandates are called for. When those conditions fail to hold, mask mandates are either unnecessary, socially inefficient, or incentive-incompatible. Some empirical implications of the model concerning mask-wearing and infection rate are discussed.

In response to the coronavirus (Covid-19) pandemic, there has been a complementary approach to monetary and fiscal policy in the United States with the Federal Reserve System purchasing extraordinary quantities of securities and the government running a deficit of some 17% of projected GDP. The Federal Reserve pushed the discount rate close to zero and stabilised financial markets with emergency liquidity provided through a new open-ended long-term asset purchase programme. To capture the interventions, we develop a model in which the central bank uses reserves to buy much of the huge issuance of government bonds and this offsets the impact of shutdowns and lockdowns in the real economy. We show that these actions reduced lending costs and amplified the impact of supportive fiscal policies. We then run a counterfactual analysis which suggests that if the Federal Reserve had not intervened to such a degree, the economy may have experienced a significantly deeper contraction as a result from the Covid-19 pandemic.