Epidemic responses under uncertainty.

We examine how policymakers react to a pandemic with uncertainty around key epidemiological and economic policy parameters by embedding a macroeconomic SIR model in a robust control framework. Uncertainty about disease virulence and severity leads to stricter and more persistent quarantines, while uncertainty about the economic costs of mitigation leads to less stringent quarantines. On net, an uncertainty-averse planner adopts stronger mitigation measures. Intuitively, the cost of underestimating the pandemic is out-of-control growth and permanent loss of life, while the cost of underestimating the economic consequences of quarantine is more transitory.

Did the paycheck protection program hit the target?

This paper provides a comprehensive assessment of financial intermediation and the economic effects of the Paycheck Protection Program (PPP), a large and novel small business support program that was part of the initial policy response to the COVID-19 pandemic in the US. We use loan-level microdata for all PPP loans and high-frequency administrative employment data to present three main findings. First, banks played an important role in mediating program targeting, which helps explain why some funds initially flowed to regions that were less adversely affected by the pandemic. Second, we exploit regional heterogeneity in lending relationships and individual firm-loan matched data to study the role of banks in explaining the employment effects of the PPP. We find the short- and medium-term employment effects of the program were small compared to the program's size. Third, many firms used the loans to make non-payroll fixed payments and build up savings buffers, which can account for small employment effects and likely reflects precautionary motives in the face of heightened uncertainty. Limited targeting in terms of who was eligible likely also led to many inframarginal firms receiving funds and to a low correlation between regional PPP funding and shock severity. Our findings illustrate how business liquidity support programs affect firm behavior and local economic activity, and how policy transmission depends on the agents delegated to deploy it.

How Does Household Spending Respond to an Epidemic? Consumption During the 2020 COVID-19 Pandemic

We explore how household consumption responds to epidemics, utilizing transaction-level household financial data to investigate the impact of the COVID-19 virus. As the number of cases grew, households began to radically alter their typical spending across a number of major categories. Initially spending increased sharply, particularly in retail, credit card spending and food items. This was followed by a sharp decrease in overall spending. Households responded most strongly in states with shelter-in-place orders in place by March 29th. We explore heterogeneity across partisan affiliation, demographics and income. Greater levels of social distancing are associated with drops in spending, particularly in restaurants and retail.

Epidemic Responses Under Uncertainty

We examine how policymakers react to a pandemic with uncertainty regarding key epidemiological parameters by embedding a macroeconomic SIR model in a robust control framework. We find that optimal policy under uncertainty generates optimal mitigation responses that are asymmetric with respect to the initial estimate of the pandemic’s severity. When underestimating the severity, the robust control approach leads to a harsher quarantine, closer to the true optimal level, compared to a naive approach. When overestimating, the planner initially implements a policy similar to the true optimal policy but fails to relax it as the pandemic abates.

Did the Paycheck Protection Program Hit the Target?

This paper provides a comprehensive assessment of financial intermediation and the economic effects of the Paycheck Protection Program (PPP), a large and novel small business support program that was part of the initial policy response to the COVID-19 pandemic in the US. We use loan-level microdata for all PPP loans and high-frequency administrative employment data to present three main findings. First, banks played an important role in mediating program targeting, which helps explain why some funds initially flowed to regions that were less adversely affected by the pandemic. Second, we exploit regional heterogeneity in lending relationships and individual firm-loan matched data to study the role of banks in explaining the employment effects of the PPP. We find the short- and medium-term employment effects of the program were small compared to the program’s size. Third, many firms used the loans to make non-payroll fixed payments and build up savings buffers, which can account for small employment effects and likely reflects precautionary motives in the face of heightened uncertainty. Limited targeting in terms of who was eligible likely also led to many inframarginal firms receiving funds and to a low correlation between regional PPP funding and shock severity. Our findings illustrate how business liquidity support programs affect firm behavior and local economic activity, and how policy trans-mission depends on the agents delegated to deploy it.

Did the Paycheck Protection Program Hit the Target?

From the Abstract: This paper takes an early look at the Paycheck Protection Program (PPP), a large and novel small business support program that was part of the initial policy response to the COVID-19 [coronavirus disease 2019] pandemic. We use new data on the distribution of the first round of PPP loans and high-frequency microlevel employment data to consider two dimensions of program targeting. First, we do not find evidence that funds flowed to areas more adversely affected by the economic effects of the pandemic, as measured by declines in hours worked or business shutdowns. If anything, funds flowed to areas less hard hit. Second, we find significant heterogeneity across banks in terms of disbursing PPP funds, which does not only reflect differences in underlying loan demand. The top-4 banks alone account for 36% of total pre-policy small business loans, but disbursed less than 3% of all PPP loans in the first round. Areas that were significantly more exposed to low PPP banks received much lower loan allocations. We do not find evidence that the PPP had a substantial effect on local economic outcomes--including declines in hours worked, business shutdowns, initial unemployment insurance claims, and small business revenues--during the first round of the program. Firms appear to use first round funds to build up savings and meet loan and other commitments, which points to possible medium-run impacts. As data become available, we will continue to study employment and establishment responses to the program and the impact of PPP support on the economic recovery. Measuring these responses is critical for evaluating the social insurance value of the PPP and similar policies.COVID-19 (Disease)

How Does Household Spending Respond to an Epidemic? Consumption during the 2020 COVID-19 Pandemic

Utilizing transaction-level financial data, we explore how household consumption responded to the onset of the COVID-19 pandemic. As case numbers grew and cities and states enacted shelter-in-place orders, Americans began to radically alter their typical spending across a number of major categories. In the first half of March 2020, individuals increased total spending by over 40% across a wide range of categories. This was followed by a decrease in overall spending of 25%–30% during the second half of March coinciding with the disease spreading, with only food delivery and grocery spending as major exceptions to the decline. Spending responded most strongly in states with active shelter-in-place orders, though individuals in all states had sizable responses. We find few differences across individuals with differing political beliefs, but households with children or low levels of liquidity saw the largest declines in spending during the latter part of March.