Pandemics: Economic and Financial Insights

Consumption Dynamics in the COVID Crisis: Real-Time Insights from Transaction and Bank Data
John Galbraith
McGill University

This paper uses transaction and bank data from France to document the evolution of consumption and savings dynamics since the onset of the pandemic. Consumption dropped severely during the spring nation-wide lockdown but experienced a strong rebound during the Summer, before faltering in late September. This drop in consumption was met with a significant increase in aggregate households’ net financial wealth. The excess savings is heterogenous across the income distribution: 50% of excess wealth accrued to the top decile. Households in the bottom decile of the income distribution experienced a severe decrease in consumption, a decrease in savings and an increase in debt. (Coauthors: D. Bounie, Y. Camara, E. Fize, C. Landais, C. Lavest, T. Pazem, B. Savatier)

A Pandemic Business Interruption Insurance
Pierre Picard
École Polytechnique (France)

A pandemic risk cannot be mutualized since it affects simultaneously a large number of businesses; furthermore, it has a systemic nature because it goes along with a severe decline in the real economy. However, as shown by COVID-19, pandemics affect economic sectors in a differentiated way: some of them are very severely affected because their activity is strongly impacted by travel bans and constraints on work organization, while others are more resistant. We study risk coverage mechanisms based on a portfolio of financial securities, including long-short positions and options in stock markets. (Coauthor: A. Louass)

Debt-Relief Programs and Money Left on the Table: Canada’s Response to COVID-19
Nicolas Vincent
HEC Montréal

This paper analyzes the effectiveness of debt-relief programs targeting short-run household liquidity constraints implemented in Canada in response to the Covid-19 pandemic. These programs allowed individuals to push off mortgage and credit card payments and cut in half interest rates on credit card debt. Using credit-bureau data, we document that, despite potential savings above $4 billion, enrollment was limited: 24% for mortgages and 7% for credit cards. Close to 80% of individuals were unaware of the credit-card relief program while others faced important fixed non-monetary costs preventing uptake. (Coauthors: J. Allen, R. Clark, S. Lic)

The Welfare Benefits of a COVID Vaccine
Christian Gollier
Toulouse School of Economics

I calibrate an age-structured SIR model of the B.1.1.7 COVID variant on the eve of the vaccination campaign in France and measure the welfare benefit of speeding the vaccination under the standard stop-and-go policy. Overall, a 1-week delay in the vaccination campaign raises the death toll by approximately 2500, and it reduces wealth by 0.34% of annual GDP. Vaccine nationalism is modelled by assuming two identical Frances, one with a vaccine production capacity and the other without it. If the production country vaccinates its entire population before exporting to the other, the global death toll is increased by 20%.

Longer-Run Economic Consequences of Pandemics
Alan M. Taylor
University of California-Davis

What are the medium- to long-term effects of pandemics? How do they differ from other economic disasters? This paper studies major pandemics using the rates of return on assets stretching back to the 14th century. Significant macroeconomic after-effects of pandemics persist for decades, with real rates of return substantially depressed, in stark contrast to what happens after wars. The findings are consistent with the neoclassical growth model: capital is destroyed in wars, but not in pandemics; pandemics instead may induce relative labor scarcity and/or a shift to greater precautionary savings. (Coauthors: Ò. Jordà, S. R. Singh)