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The Cost of the Covid-19 Crisis: Lockdowns, Macroeconomic Expectations, and Consumer Spending (NBER, 19 page read) A survey with a sample size of 10,000 finds that households residing in countries that imposed lockdown sooner expect the unemployment rate to be 13pp higher over the coming year, with the impact still felt up to five years from now. These participants were also inclined to close positions of foreign equities and have liquid savings.
COVID-19 is also a Reallocation Shock (NBER, 27 page read) 42% of all recent layoffs will be permanent. Current unemployment benefits offered (in cases exceeding prior worker earnings), policies to subsidise employee retention, occupational licensing restrictions, and regulatory barriers will all hinder the economy’s return to its original capacity.
What is the Shape of This Cycle as a Letter: V, L, W, J, U, or Maybe a Lazy J or Wiggly W? (Angry Bear, 5 min read) If there is a second wave of cases, recovery in the US could follow a “Wiggly W”, where, unlike the neat W, the downturn is asymmetric, and the upturn is much slower. But the most likely scenario is a “Lazy J” where there is a sharp downturn but (unlike the shape J) the recovery is prolonged (a bit like a Nike Swoosh).