Understanding How the Coronavirus Affects the Global Economy: A Guide for Non-Economists

Al-Ubaydli, Omar (2020): Understanding How the Coronavirus Affects the Global Economy: A Guide for Non-Economists. Published in: Derasat Strategic Studies Series (13 April 2020)

Abstract

The coronavirus is causing considerable damage to the global economy, and the potential damage is continuing to grow. Unlike many other crises, evaluating the economic impact of the coronavirus is extremely challenging, due to the complexity of the ways in which it affects economic activity. This paper explains the main channels that economists think about when attempting to gauge the virus’s economic fallout, and then presents some of the most recent assessments being circulated in the research community. It is written in a manner that is accessible to non-economists, while still making use of the cutting-edge contributions made in the academic literature.

• Item Type: MPRA Paper
• Language: English
• Keywords: coronavirus; global economy
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy ; Stabilization ; Treasury Policy; F - International Economics > F1 - Trade; I - Health, Education, and Welfare > I1 - Health > I18 - Government Policy ; Regulation ; Public Health

References

Alicke, K., Azcue, X. and Barriball, E., 2020. Supply-chain recovery in coronavirus times—plan for now and the future. McKinsey and Company. https://www.mckinsey.com/business-functions/operations/our-insights/supply-chain-recovery-in-coronavirus-times-plan-for-now-and-the-future# (accessed 06/04/2020).

Autor, D.H., Dorn, D. and Hanson, G.H., 2016. The China shock: Learning from labor-market adjustment to large changes in trade. Annual Review of Economics, 8, pp.205-240.

Baccini, L. and Kim, S.Y., 2012. Preventing protectionism: International institutions and trade policy. The review of international organizations, 7(4), pp.369-398.

Baker, S.R., Bloom, N. and Davis, S.J., 2016. Measuring economic policy uncertainty. The quarterly journal of economics, 131(4), pp.1593-1636.

Barro, R.J., Ursua, J.F. and Weng, J., 2020. The Coronavirus and the Great Influenza Epidemic. BBC, 2020. Coronavirus: Oil price collapses to lowest level for 18 years. https://www.bbc.com/news/business-52089127 (accessed 06/04/2020).

Beach, B., Ferrie, J.P. and Saavedra, M.H., 2018. Fetal shock or selection? The 1918 influenza pandemic and human capital development (No. w24725). National Bureau of Economic Research.

Berkmen, S.P., Gelos, G., Rennhack, R. and Walsh, J.P., 2012. The global financial crisis: Explaining cross-country differences in the output impact. Journal of International Money and Finance, 31(1), pp.42-59.

Blanchard, O.J. and Summers, L.H., 1986. Hysteresis and the European unemployment problem. NBER macroeconomics annual, 1, pp.15-78.

Blanchard, O. and Wolfers, J., 2000. The role of shocks and institutions in the rise of European unemployment: the aggregate evidence. The economic journal, 110(462), pp.C1-C33.

Bown, C.P., 2018. Trade policy toward supply chains after the great recession. IMF Economic Review, 66(3), pp.602-616.

Carabelli, A.M. and Cedrini, M.A., 2014. Keynes, the great depression, and international economic relations. History of economic ideas, pp.105-135.

Casella, A. and Feinstein, J.S., 1990. Economic exchange during hyperinflation. Journal of Political Economy, 98(1), pp.1-27.

Chao, S., 2020. For China Supply Chains, Backlogs, but ‘Things Are Looking Better’. Industry Week, https://www.industryweek.com/supply-chain/article/21127061/for-china-supply-chains-backlogs-but-things-are-looking-better (accessed 06/04/2020).

Colantone, I. and Stanig, P., 2018. The trade origins of economic nationalism: Import competition and voting behavior in Western Europe. American Journal of Political Science, 62(4), pp.936-953.

Coles, M. and Masters, A., 2000. Retraining and long-term unemployment in a model of unlearning by not doing. European Economic Review, 44(9), pp.1801-1822.

Court, E., 2020. Coronavirus Tests From LabCorp, Quest Will Cost $50 to $100. Bloomberg. https://www.bloomberg.com/news/articles/2020-03-15/coronavirus-tests-from-labcorp-quest-will-cost-50-to-100 (accessed 12/04/2020).

Das, A. and Handfield, R.B., 1997. Just‐in‐time and logistics in global sourcing: an empirical study. International Journal of Physical Distribution & Logistics Management.

Davies, S. 2020a. What history teaches us about the coronavirus pandemic. Al Arabiya Website, https://english.alarabiya.net/en/views/news/middle-east/2020/03/16/What-history-teaches-us-about-the-coronavirus-pandemic-.html (accessed 23/03/2020).

Davis, S. 2020b. https://web.facebook.com/stephen.davies.710667/posts/10163088876845114.

Demiryol, T., 2019, July. Political Economy of Connectivity: China’s Belt and Road Initiative. In Proceedings of the 13th International RAIS Conference on Social Sciences and Humanities (pp. 168-180). Scientia Moralitas Research Institute.

Dhal, S., 2020. Coronavirus: How long does it take to recover? Gulf News. https://gulfnews.com/uae/coronavirus-how-long-does-it-take-to-recover-1.70470155 (accessed 09/04/2020).

Douglas, J. and Hannon, P, 2020. U.K. Sends a Jolt of Economic Stimulus to Cushion Against the Coronavirus. Wall Street Journal Website, https://www.wsj.com/articles/boe-cuts-bank-rate-to-0-25-from-0-75-11583911033 (accessed 23/03/2020).

Dowd, K., 2009. Moral hazard and the financial crisis. Cato J., 29, p.141.

Duffin, E., 2020. Impact of the coronavirus pandemic on the global economy - Statistics & Facts. Statista. https://www.statista.com/topics/6139/covid-19-impact-on-the-global-economy/ (accessed 12/04/2020).

Dunn, A., 2020. The Wuhan coronavirus has now claimed more lives than SARS. Top scientists told us it could take years and cost $1 billion to make a vaccine to fight the epidemic. Business Insider. https://www.businessinsider.com/wuhan-coronavirus-vaccine-could-take-years-timeline-and-cost-2020-2 (accessed 09/04/2020).

Duran, M.A. and Lozano-Vivas, A., 2015. Moral hazard and the financial structure of banks. Journal of International Financial Markets, Institutions and Money, 34, pp.28-40.

EIA, 2020. Short-Term Energy Outlook. https://www.eia.gov/outlooks/steo/report/global_oil.php (accessed 10/04/2020).

Eichenbaum, M., Rebelo, S. and Trabandt, M., 2020. The Macroeconomics of Epidemics (No. w26882). National Bureau of Economic Research.

Fama, E.F., 1991. Efficient capital markets: II. The journal of finance, 46(5), pp.1575-1617.

Fan, V.Y., Jamison, D.T. and Summers, L.H., 2016. The inclusive cost of pandemic influenza risk (No. w22137). National Bureau of Economic Research.

Frese, M. and Mohr, G., 1987. Prolonged unemployment and depression in older workers: a longitudinal study of intervening variables. Social Science & Medicine, 25(2), pp.173-178.

Goldman, D., 2020. Federal Reserve cuts rates to zero to support the economy during the coronavirus pandemic. CNN Website, https://edition.cnn.com/2020/03/15/economy/federal-reserve/index.html (accessed 23/03/2020).

Goodhart, C.A., Kashyap, A.K., Tsomocos, D.P. and Vardoulakis, A.P., 2012. Financial regulation in general equilibrium (No. w17909). National Bureau of Economic Research.

Gordon, R.J., 1990. What is new-Keynesian economics?. journal of Economic Literature, 28(3), pp.1115-1171.

Gormsen, N.J. and Koijen, R.S., 2020. Coronavirus: Impact on Stock Prices and Growth Expectations. University of Chicago, Becker Friedman Institute for Economics Working Paper, (2020-22).

Guerrieri, V., Lorenzoni, G., Straub, L. and Werning, I., 2020. Macroeconomic Implications of COVID-19: Can Negative Supply Shocks Cause Demand Shortages? https://economics.mit.edu/files/19351.

Hogan, A., 2020. Ventilators are in high demand for Covid-19 patients. How do they work? STAT. https://www.statnews.com/2020/03/30/covid-19-ventilators-how-they-work/ (accessed 09/04/2020).

IATA, 2020a. Remarks of Alexandre de Juniac at the IATA Media Briefing on COVID-19, 7 April 2020. IATA Press Releases. https://www.iata.org/en/pressroom/speeches/2020-04-07-01/ (accessed 09/04/2020).

IATA, 2020b. 25 Million Jobs at Risk with Airline Shutdown. IATA Press Releases. https://www.iata.org/en/pressroom/pr/2020-04-07-02/ (accessed 09/04/2020).

IGM Forum, 2020. Policy for the COVID-19 Crisis. http://www.igmchicago.org/surveys/policy-for-the-covid-19-crisis/ (accessed 06/04/2020).

Irwin, D.A., 1995. The GATT in historical perspective. The American economic review, 85(2), pp.323-328.

Jarreau, J. and Poncet, S., 2012. Export sophistication and economic growth: Evidence from China. Journal of development Economics, 97(2), pp.281-292.

Joyce, M., Tong, M. and Woods, R., 2011. The United Kingdom’s quantitative easing policy: design, operation and impact. Bank of England Quarterly Bulletin.

Keynes, J.M., 2018. The general theory of employment, interest, and money. Springer.

Kroft, K., Lange, F. and Notowidigdo, M.J., 2013. Duration dependence and labor market conditions: Evidence from a field experiment. The Quarterly Journal of Economics, 128(3), pp.1123-1167.

Kroft, K., Lange, F., Notowidigdo, M.J. and Katz, L.F., 2016. Long-term unemployment and the Great Recession: the role of composition, duration dependence, and nonparticipation. Journal of Labor Economics, 34(S1), pp.S7-S54.

Krosch, A.R., Tyler, T.R. and Amodio, D.M., 2017. Race and recession: Effects of economic scarcity on racial discrimination. Journal of personality and social psychology, 113(6), p.892.

Lardy, N.R., 2016. China: Toward a consumption-driven growth path. In Seeking Changes: The Economic Development in Contemporary China (pp. 85-111).

Lee, J.W., 1993. International trade, distortions, and long-run economic growth. Staff papers, 40(2), pp.299-328.

Leitch, G. and Ernesttanner, J., 1995. Professional economic forecasts: are they worth their costs?. Journal of Forecasting, 14(2), pp.143-157.

Lewis, P., Clarke, S., Barr, C., Holder, J. and Kommenda, N., 2018. Revealed: one in four Europeans vote populist. The Guardian. https://www.theguardian.com/world/ng-interactive/2018/nov/20/revealed-one-in-four-europeans-vote-populist (accessed 08/04/2020).

Lucas, R.E., 1976, January. Econometric policy evaluation: A critique. In Carnegie-Rochester conference series on public policy (Vol. 1, No. 1, pp. 19-46).

Makridis, C. and Hartley, J., 2020. The Cost of Covid-19: A Rough Estimate of the 2020 US GDP Impact. Special Edition Policy Brief.

McNees, S.K., 1992. How large are economic forecast errors?. New England Economic Review, pp.25-42.

Murphy, K., 2020. Push to kickstart Australia's ravaged seafood export trade amid coronavirus restrictions. The Guardian, https://www.theguardian.com/australia-news/2020/apr/01/push-to-kickstart-ravaged-seafood-export-trade-amid-coronavirus-restrictions (accessed 06/04/2020).

O’Brien, J., 2020. Nearly One-Fifth of Providers Dealing With Higher Medical Mask Prices. HealthLeaders. https://www.healthleadersmedia.com/finance/nearly-one-fifth-providers-dealing-higher-medical-mask-prices (accessed 09/04/2020).

OCED, 2020. New OECD outlook on the global economy. https://www.oecd.org/coronavirus/en/ (accessed 12/04/2020).

Pasley, J., 2020. Trump threatens 'very substantial' tariffs on imported oil if Saudi Arabia and Russia can't reach a deal to push prices back up. Insider. https://www.insider.com/trump-threatens-saudi-arabia-russia-oil-tariffs-2020-4 (accessed 10/04/2020).

Pigou, A.C., 1936. Mr. JM Keynes' General theory of employment, interest and money. Economica, 3(10), pp.115-132.

Pons, J., 2000. The accuracy of IMF and OECD forecasts for G7 countries. Journal of Forecasting, 19(1), pp.53-63.

Reinhart, C.M., Reinhart, V.R. and Rogoff, K.S., 2012. Public debt overhangs: advanced-economy episodes since 1800. Journal of Economic Perspectives, 26(3), pp.69-86.

Reinicke, C., 2020. 7 financial heavyweights have unveiled forecasts for a sudden US recession. Here's what they had to say about the economic damage coronavirus will cause. Markets Insider. https://markets.businessinsider.com/news/stocks/us-recession-coronavirus-pandemic-firms-forecasting-economic-distress-predictions-2020-2020-3-1029019597#1-goldman-sachs-us-gdp-24-in-2q-a-record-dop1 (accessed 12/04/2020).

Roland Berger, 2020. World economic growth plunges due to coronavirus - which industries are suffering the most. https://www.rolandberger.com/en/Point-of-View/Coronavirus-Current-status-and-economic-impact-forecast.html (accessed 12/04/2020).

Romer, P. and Garber, M., 2020. How to Prevent a Coronavirus Depression. New York Times Website, https://www.nytimes.com/2020/03/23/opinion/coronavirus-depression.html (accessed 23/03/2020).

Rugaber, C., 2020. Fed Will Provide Nearly Unlimited Lending, Chair Powell Says. Time Magazine. https://time.com/5810597/fed-coronavirus-lending/ (accessed 06/04/2020).

Rushe, D., and Holpuch, A., 2020. Record 3.3m Americans file for unemployment as the US tries to contain Covid-19. The Guardian, https://www.theguardian.com/business/2020/mar/26/us-unemployment-rate-coronavirus-business (accessed 06/04/2020).

Sachs, J., 1998. International economics: Unlocking the mysteries of globalization. Foreign policy, pp.97-111.

Smith, R.D., Keogh-Brown, M.R., Barnett, T. and Tait, J., 2009. The economy-wide impact of pandemic influenza on the UK: a computable general equilibrium modelling experiment. BMJ, 339, p.b4571.

Spinney, L., 2020. When will a coronavirus vaccine be ready? The Guardian. https://www.theguardian.com/world/2020/apr/06/when-will-coronavirus-vaccine-be-ready (accessed 09/04/2020).

Taskin, L. and Edwards, P., 2007. The possibilities and limits of telework in a bureaucratic environment: lessons from the public sector. New Technology, Work and Employment, 22(3), pp.195-207.

Tilford, S., 2020. America Is Having an Unemployment Apocalypse. Europe Chose Not to. Foreign Policy. https://foreignpolicy.com/2020/04/04/kurzarbeit-coronavirus-pandemic-america-unemployment-apocalypse-europe-not/ (accessed 10/04/2020).

Vestergaard, J. and Wade, R., 2012. The Governance Response to the Great Recession: The" Success" of the G20. Journal of Economic Issues, 46(2), pp.481-490.

Wade, M., 2020. Coronavirus: your guide to winners and losers in the business world. The Conversation. http://theconversation.com/coronavirus-your-guide-to-winners-and-losers-in-the-business-world-134205 (accessed 06/04/2020).

Wen, J., Aston, J., Liu, X. and Ying, T., 2020. Effects of misleading media coverage on public health crisis: A case of the 2019 novel coronavirus outbreak in China. Anatolia, pp.1-6.

Wood, V,, 2020. Coronavirus: WHO accuses medical suppliers of selling face masks at six times average price amid global crisis. Independent. https://www.independent.co.uk/news/health/coronavirus-face-masks-who-buy-china-do-they-work-gloves-a9373701.html (accessed 10/04/2020).

Worldometer, 2020. COVID-19 Coronavirus Pandemic, https://www.worldometers.info/coronavirus/ (accessed 12/04/2020).

World Bank, 2020. Data. data.worldbank.org (accessed 06/04/2020).

WTO, 2020. Trade set to plunge as COVID-19 pandemic upends global economy. https://www.wto.org/english/news_e/pres20_e/pr855_e.htm (accessed 12/04/2020).

Yao, Y., 2014. The Chinese growth miracle. In Handbook of economic growth (Vol. 2, pp. 943-1031). Elsevier.

Yong, E., 2020. How the Pandemic Will End. The Atlantic. https://www.theatlantic.com/health/archive/2020/03/how-will-coronavirus-end/608719/ (accessed 06/04/2020).