Follow the link for the full summary: https://markusacademy.substack.com/p/covid-19-can-supply-shocks-cause 

Explore the webinar series: https://markusacademy.substack.com/archive

On June 19, 2020, Veronica Guerrieri joined the Princeton Bendheim Center for Finance to discuss recent research with Guido Lorenzoni, Ludwig Straub, and Ivan Werning on supply and demand shocks resulting from COVID-19.

Download the slides here.*

● A model that takes into account multiple sectors and an incomplete market is necessary to understand how to respond to COVID-19. Economies with multiple sectors and incomplete markets might make Keynesian supply shocks more likely, amplifying the effects of the shock.

● Ultimately, the authors argue the shock caused by the pandemic might have Keynesian demand features. Firm exit and job destruction might trigger changes in aggregate demand that are larger than the shocks themselves, aggravating the recession.

● When we take multiple sectors and incomplete markets into account, we see how important social insurance is in responding to COVID-19. Monetary policy is important, but fiscal policy is crucial — with the right fiscal policy, we may not need to lower interest rates.

● Guerrieri's policy remarks: the fiscal multiplier on government spending may equal 1, unemployment in certain sectors may not be socially inefficient once health externalities are accounted for, and targeted transfers can provide insurance, raise the natural rate, and make public health policy more desirable all at once.

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Follow the link for the full summary: https://markusacademy.substack.com/p/the-economic-impacts-of-covid-19 

Explore the webinar series: https://markusacademy.substack.com/archive

On June 17, 2020, Raj Chetty joined the Princeton Bendheim Center for Finance to discuss new research with John Friedman, Nathaniel Hendren, Michael Stepner, and the Opportunity Insights Team. The new paper uses private sector data to document the real-time impacts of COVID-19 on people, businesses, and communities. Chetty is a Professor of Public Economics at Harvard University.

Download the slides here.*

● Economists often study the effects of shocks with household survey data, but these data have limitations, including time lags, low frequencies, and the inability to be disaggregated. Private sector data addresses many of these limitations, though researchers must benchmark to public sources and protect confidentiality.

● In the first few months of the pandemic, spending fell much more for the rich than the poor, with the bulk of the reduction resulting from a drop in spending on in-person services. Business revenue dropped more severely in high-income areas, suggesting a supply shock rather than a lack of purchasing power.

● CARES Act stimulus increased spending but didn't fill the hole created by the COVID shock. Stimulus checks increased spending among low-income Americans, but the vast majority of the increase was on durable goods, not in-person services. The Paycheck Protection Program (PPP) had limited impact on employment.

● Effects of this shock on employment and inequality may be long lasting and require policy interventions. 70% of low-income workers who had jobs in wealthy parts of Manhattan lost their jobs, and there are potentially big implications for inequality, including in education.

Follow the link for the full summary: https://markusacademy.substack.com/p/global-sovereign-debt-and-the-dollar 

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On June 12, 2020, Kenneth Rogoff joined the Princeton Bendheim Center for Finance to discuss the implications of COVID-19 for global sovereign debt and the dollar.

Rogoff is a Professor of Public Policy and Economics at Harvard University and a former Chief Economist of the IMF.

● Double-dips are common in financial crises, and we should expect one this time around. Looking at 100 past systemic financial crises, more than 40% had a double-dip.

● In emerging markets, there is limited fiscal space and debt restructuring may need to happen in order to handle the health crisis. During crises, private debt often ends up becoming public debt, and emerging markets run into multiple equilibrium and default at much lower thresholds than advanced economies.

● In advanced economies, political considerations will play a major role in how to address outstanding debt. While the market might think governments will trim benefits like social security and treat explicit government debt as senior, that shouldn't be taken for granted—pensioners are a powerful voter base.

● The dollar will remain the dominant currency, but the U.S. could become fragile if foreigners were to ever become wary about holding U.S. debt. Governments should be spending to mitigate the pandemic and recession, treating the crisis like "war financing," but Rogoff argues the idea that there's no cost to high debt is a dream.

Follow the link for the full summary: https://markusacademy.substack.com/p/the-economic-and-social-implications

Explore the webinar series: https://markusacademy.substack.com/archive

On June 8, 2020, Lisa Cook joined the Princeton Bendheim Center for Finance to discuss the economic and social implications of racial disparities in the U.S., with a specific focus on research that examines how violence impacts innovation among black Americans.

Cook is a Professor of Economics and International Relations at Michigan State University and was previously a senior economist in President Obama's Council of Economic Advisers.

Download the slides here.*

● COVID-19 exposed many economic and societal fissures in America, and a common feature of these inequities—from health to wealth gaps to police violence—is systemic racism. There has been a lot of literature on the origins, channels, and implications of systemic racism, but it largely hasn't examined macro inputs and outcomes like innovation and GDP.

● Innovation is a key driver of the economy, contributing to 10% of GDP and, through business investment, driving 20% of GDP.

● In studies on innovation and violence, Cook and co-authors find that violence significantly diminishes innovation and economic activity with persistent effects. Lynchings affected patents of African Americans significantly, and segregation laws hurt the most valuable patents of African Americans—electrical patents.

● As a result of African Americans not being more engaged in the innovation process, we're losing 4.4% of GDP each year, compared to 2.7% for women not being more engaged in innovation. Cook outlines several policy prescriptions, including improving the STEM pipeline, addressing the racial wealth gap, and pursuing structural change to combat systemic racism.

Follow the link for the full summary: https://markusacademy.substack.com/p/the-covid-crisis-was-a-wake-up-call 

Explore the webinar series:https://markusacademy.substack.com/archive

On June 5, 2020, Darrell Duffie joined Markus' Academy to discuss redesigning the U.S. Treasury market after COVID-19. Duffie is a Professor of Finance at Stanford's Graduate School of Business.

In his presentation, Duffie argued that the current design of the U.S. Treasury market creates moral hazard. He outlined a new proposal for transitioning the market from one that runs through dealer balance sheets to one with broad central clearing.

Download the slides here.

● Duffie noted this is the fourth time in the last century that the Fed has had to intervene in the Treasury market. Ultimately, the Fed purchased $1 trillion of treasuries in only three weeks' time, followed by more purchases.

● The Treasury market failure resulted from overwhelmed dealers. Because the market is dealer-intermediated, dealer's balance sheets became over-stuffed. A pipeline effect overwhelmed dealers, even though they were performing their role and expanded intermediation.

● We can expect this market failure to happen again—and perhaps more often. U.S. debt-to-GDP is growing enormously, resulting in more Treasury securities that need to be mediated by the market.

● Duffie's proposal: Treasury market structure based on broad central clearing is preferable. Broad central clearing would 1) improve the safety of settlements in the market, 2) through netting of purchases against sales, reduce the amount of dealer balance sheet needed for a given volume of trade, and 3) allow for the possibility of all-to-all trade in the future.

Follow the link for the full summary:

https://markusacademy.substack.com/p/the-feds-longer-term-challenges-after

Link to sign up for the webinar series:

https://markusacademy.substack.com/

On June 1, 2020, Bill Dudley joined Markus' Academy to discuss the IMF’s perspective on COVID-19. Dudley is a Senior Research Scholar at Princeton University’s Griswold Center for Economics Policy Studies and former President of the Federal Reserve Bank of New York.

Download the slides here.

Timestamps:

[0:00] Markus’ introduction

[10:48] Four Longer-Term Issues for the Fed

[12:52] The Fed’s Balance Sheet

[23:10] Independence of Monetary Policy

[30:36] The Longer Run Macro Implications

[37:34] The Moral Hazard Problem

[43:20] Other Lessons of the Crisis

[46:59] Audience Q&A

Follow the link for the full summary:

https://markusacademy.substack.com/p/the-great-lockdown-through-the-global

Link to sign up for the webinar series:

https://markusacademy.substack.com/

On May 29, 2020, Gita Gopinath joined Markus' Academy to discuss the IMF’s perspective on COVID-19. Gopinath is the Chief Economist of the International Monetary Fund (IMF) and a Professor of International Studies and Economics at Harvard University.

Download the slides here.

Timestamps:

[0:00] Markus’ introduction

[19:48] Truly global crisis

[32:56] Common features of economic impact

[42:08] Financial markets: disconnect?

[45:31] Monetary and Fiscal Policy

[51:08] Next Steps

[55:05] Profound uncertainty about the recovery

[56:07] Policies for the re-opening phase

[1:02:20] Audience Q&A

Follow the link for the full summary:

https://markusacademy.substack.com/p/covid-19-and-the-global-economy

Link to sign up for the webinar series:

https://markusacademy.substack.com/

On May 22, 2020, Lawrence H. Summers joined Markus' Academy for a webinar on reopening the economy after COVID-19. Summers is a Professor at Harvard’s Kennedy School of Government, a former U.S. Treasury Secretary, President Emeritus of Harvard University, and former Chief Economist at the World Bank.

Timestamps:

[2:05] How to accelerate vaccine invention?

[19:30] Testing

[27:48] How do great powers compete economically?

[40:23] 3 likely future scenarios of US-China relations

[49:39] Free market vs more government? 

[57:56] Speed of recovery and how to pay for current expenditures? 

[1:00:11] Macroeconomic points

[1:12:29] Should governments use COVID to push other agendas? 

[1:24:44] Are there dangers we are ignoring?

Follow the link for the full summary:

https://markusacademy.substack.com/p/covid-19-and-re-opening-the-economy

Link to sign up for the webinar series:

https://markusacademy.substack.com/

On May 18, 2020, John Cochrane joined Markus' Academy for a webinar on reopening the economy after COVID-19. Cochrane is a Senior Fellow at the Hoover Institution at Stanford University and author of The Grumpy Economist blog.

Download the slides here.

Timestamps:

[0:00] Markus’ introduction

[15:04] The dumb reopening

[22:06] Behavioral SIR models

[30:08] Models miss heterogeneity

[33:51] Testing

[42:39] Summer/Fall

[45:27] Policy

[46:44] Macro/finance policy

[58:33] Legacy

[1:04:22] Audience Q&A

Follow the link for the full summary:

https://markusacademy.substack.com/p/the-audacity-of-slope-how-fast-a

Link to sign up for the webinar series:

https://markusacademy.substack.com/

On May 15, 2020, Paul Krugman joined Markus' Academy for a webinar on COVID-19 and the pace of economic recovery. Krugman is Professor Emeritus at Princeton University, the Distinguished Professor of Economics at the Graduate Center of the City University of New York, a columnist at the New York Times, and a 2008 recipient of the Nobel Prize in Economics.

Download the slides here.

Timestamps:

[0:00] Markus’ introduction

[13:06] Beginning of Krugman’s presentation

[17:32] Discussion of two recent papers

[19:26] Dynamics coming from labor market search

[28:12] Fed action has contained financial spillover

[34:17] Fast recoveries followed severe monetary tightening; slow followed slumps caused by private sector excesses

[39:20] Slow recoveries followed periods of unsustainable spending, ending in Minsky/Wile E. Coyote ending

[46:19] How does this apply to COVID-19 shock? 

[52:37] Bond market seems to be predicting slow recovery, but has been wrong in the past

[1:08:07] Audience Q&A