Bryn Battersby, Mr. Raphael A Espinoza, Jason Harris, Mr. Gee Hee Hong, Mrs. Sandra V Lizarazo Ruiz, Mr. Paolo Mauro, and Amanda Sayegh
During the COVID-19 pandemic and global financial crisis, governments swiftly served as financiers of last resort through large financial support measures (FSMs) such as loan and guarantee programs and equity injections in firms. This Staff Discussion Note argues that such FSMs prevented bankruptcies and attenuated the recession by increasing firms’ liquidity, reducing risk premiums, and boosting confidence. But FSMs also carry large and long-lasting fiscal costs and risks. The note presents recommendations for managing the legacies of the COVID-19 programs and preparing for future crises. Ideally, FSMs should be assessed and included in budget plans, though a balance needs to be struck between speed and scrutiny.
Jiaming Soh, Myrto Oikonomou, Carlo Pizzinelli, Mr. Ippei Shibata, and Ms. Marina Mendes Tavares
This paper investigates whether the COVID-19 recession led to an increase in demand for digital occupations in the United States. Using O*NET to capture the digital content of occupations, we find that regions that were hit harder by the COVID-19 recession experienced a larger increase in the share of digital occupations in both employment and newly-posted vacancies. This result is driven, however, by the smaller decline in demand for digital workers relative to non-digital ones, and not by an absolute increase in the demand for digital workers. While our evidence supports the view that digital workers, particularly those in urban areas and cognitive occupations, were more insulated during this recession, there is little indication of a persistent shift in the demand for digital occupations.
Andrea Deghi, Mr. Fabio M Natalucci, and Mahvash S Qureshi
After dropping sharply in the early phases of the COVID-19 pandemic, commercial real estate prices are on the mend. However, the initial price decline, as well as the pace of recovery, vary widely across regions and different segments of the commercial real estate market. This note analyzes the factors that explain this divergence using city-level data from major advanced and emerging market economies. The findings show that pandemic-specific factors such as the stringency of containment measures and the spread of the virus are strongly associated with a decline in prices, while fiscal support and easy financial conditions maintained by central banks have helped to cushion the shock. A higher vaccination rate has aided the recovery of the sector, especially in the retail segment. Structural changes in private behavior such as the trend toward teleworking and e-commerce have also had an impact on commercial property prices in some segments. The outlook of the sector across regions thus remains closely tied to the trajectory of the pandemic and broader macroeconomic recovery, financial market conditions, and the pace of structural shifts in the demand for specific property types. In an environment of tightening financial conditions and a slowdown in economic activity, continued vigilance is warranted on the part of financial supervisors to minimize financial stability risks stemming from potential adverse shocks to the sector.
In this paper, we present a framework for assessing the effectiveness of different business closure policies, using New York City as a case study. Business closure policies have been widely implemented in an attempt to slow down the pandemic, but it is difficult to measure the contribution of closures of specific industries to virus transmission. Our framework allows us to estimate the impact of specific industry closures on the spread of COVID-19 via their effects on aggregate mobility. We find that early reopening led to a prolonged pandemic and a large case surge in the second wave during 2020, though the reopening allowed the city to regain its economic function as a consumption hub. An alternative policy that extends the lockdown is found to be more cost-effective as it makes future traveling safer and prevents the economy from relapsing into a more stringent policy regime.
Mr. Anil Ari, Jean-Marc B. Atsebi, and Mar Domenech Palacios
We use a decomposition methodology to analyze the factors underlying the differentiated output losses of European countries in 2020. Our findings are fourfold: First, 2020 growth outcomes can be explained by differences in mobility, underlying growth trends, and pre-pandemic country fundamentals. Second, fiscal and monetary policies helped alleviate output losses during the pandemic in all European countries but to a varying extent. Third, shallower recessions in emerging market economies in Europe can be attributed to higher underlying growth and younger populations. Fourth, fiscal multipliers were higher in countries where above-the-line measures accounted for a larger share of the total fiscal package, the size of the total fiscal package was smaller, and inequality and informality were greater, as well as in countries with IMF-supported program during the pandemic.