Date published: Jul 2021
SUERF Policy Brief, No 123
by Francesco Grigoli, Daniel Leigh, and Antonio Spilimbergo
Download: SUERF Policy Brief, No 123 (0.68 MB)
One key factor contributing to the V-shaped recession is the exceptional policy support. This took the form of direct household support (also in emerging economies) and of forbearance. The chart below illustrates both facts. In sharp contrast with what happened in previous recessions, bankruptcies went down in advanced economies. This was certainly important to avoid the deepening of the crisis but creates a challenge for the future as regulatory forbearance may have hidden ‘zombie firms.’
Figure 3: Exceptional support (the snow blanket effect)
Fact IV: Unusual saving behavior
If support to companies may have created zombie firms, support to households has had clear effects on household saving, which boomed in all advanced economies (left chart). This is in contrast with previous recessions in the US (right chart). The unusual behavior of the household saving rate is because households had few opportunities to spend the direct fiscal support and will help the incipient recovery once mobility restrictions ease. The US saving rate spikes also reflected the especially large and broadly targeted government transfers.
Figure 4: Record saving rate
Sources: Haver Analytics; US Bureau of Economic Analysis; IMF staff calculations.
Fact V: Unusual consumption patterns
If the saving rate was abnormal, how do consumption patterns look like? They were also very different during the Great Lockdown compared to other recessions. Consumption of durable goods boomed while the consumption of services collapsed, consistent with the evidence showing that the pandemic hit contact-intensive sectors harder, and, with people spending more time at home, increased demand for electronics, furniture, and other consumer goods.
Figure 5: Unique consumption patterns
About the authors
Daniel Leigh is Division Chief in the Research Department of the International Monetary Fund. His current responsibilities include heading the division that prepares the IMF’s flagship External Sector Report. Past IMF positions include Deputy Division Chief in the Western Hemisphere Department, covering the United States and Belize, and Deputy Division Chief at the Research Department, leading teams that produce the World Economic Outlook. He is the author of several articles and book chapters on international macroeconomics, with a focus on fiscal and monetary policy and forecasting. He holds a Ph.D. in Economics from Johns Hopkins University, and an M.Sc. in Economics from the London School of Economics.
Antonio Spilimbergo is deputy director of the Research Department at the International Monetary Fund. He has been IMF mission chief for Brazil, Italy, Slovenia, Russia, and Turkey. He is a research fellow of CEPR and a member of the Research Advisory Board of the Central Bank of Russia. His papers have been published in AER, Review of Economic Studies, AEJ: Macroeconomics, and the Journal of International Economics. He co-edited the books Getting Back on Track: Growth, Employment, and Rebalancing in Europe and Brazil: Boom, Bust, and the Road to Recovery. He received his undergraduate diploma from Bocconi and his Ph.D. from the Massachusetts Institute of Technology.
SUERF Policy Briefs (SPBs) serve to promote SUERF Members’ economic views and research findings as well as economic policy-oriented analyses. They address topical issues and propose solutions to current economic and financial challenges. SPBs serve to increase the international visibility of SUERF Members’ analyses and research. The views expressed are those of the author(s) and not necessarily those of the institution(s) the author(s).
Editorial Board: Ernest Gnan, Frank Lierman, David T. Llewellyn, Donato Masciandaro, Natacha Valla.
SUERF - The European Money and Finance Forum
A-1090 Vienna, Austria
www.suerf.org • email@example.com