Economic Memo

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How do non-pharmaceutical interventions affect the spread of COVID-19? A literature review

This memo reviews the academic literature on the effectiveness of non-pharmaceutical interventions in mitigating the spread of COVID-19. Only empirical studies are included. Interventions generally reduce COVID-19 spread but the literature is less conclusive for some interventions than others. Intervention timing and local characteristics are determinants of effectiveness.


A Factor Model Approach to Nowcasting Danish GDP

This memo documents a nowcasting model for Danish GDP used during the economic crisis related to the outbreak of COVID-19. During this crisis, the model provided timely and more accurate nowcasts than a simple model. To improve the timeliness of nowcasts we make use of new high-frequency indicators.


High savings during corona were driven by restrictions rather than precautionary consumers

Households' savings increased significantly during the first wave of the corona pandemic in Denmark and several other countries. This Economic Memo finds that the higher savings in Denmark were driven by restrictions rather than precautionary consumers. Precautionary savings have so far been relatively limited and smaller than during the financial crisis. (Memo available in Danish only).


The IMF's provision of insurance against balance of payments needs and how to improve it

The memo summarizes the design and use of the IMF's precautionary facilities since their introduction and discusses lessons and potential reform options. In particular, the framework for these facilities should be adjusted to address prolonged use at high access levels.


How does COVID-19 affect r*?

This memo discusses effects of COVID-19 on interest rates through the lens of global movements in the natural real interest rate. While government spending and public debt issuance are likely to cause a rise in r*, r* may decline due to precautionary behaviour. The net effect is uncertain.


The labour market is recovering after historically severe setback

The Danish labour market experienced a historically severe setback after the partial shutdown of the economy but is now recovering. This Economic Memo gives a detailed account of the developments on the Danish labour market over the past six months and serves as the foundation for Danmarks Nationalbank’s Outlook for the Danish economy, September 2020. (Memo available in Danish only).


Using input-output methods and high frequency indicators in assessment of GDP in 2020

The memo gives a technical summary of a system developed and used in Danmarks Nationalbank's assessment of the economic impact of the covid-19 crisis. The system combines input-output tables from the national accounts, the input-output model and Danmarks Nationalbank's high-frequency indicators. This allows for a high degree of details with regard to industries and final demands combined with high frequencies indicators for subgroups of private consumption possibly of daily frequencies. (Memo available in Danish only)


Pressure on the Danish krone in times of crisis

The Danish krone was under weakening pressure in March 2020, following the outbreak of covid-19. Contrary to earlier episodes of pressure, the pressure in March 2020 was not driven by speculation about the sustainability of the Danish fixed exchange rate policy or the euro. The pressure in March was driven by the domestic insurance and pension sector and the investment fund investors, who sold kroner in response to losses on their foreign exchange assets.


The effects of the corona shock on the banking sector and the real economy

This economic memo isolates two channels through which the "corona shock" affects the economy: a fall in asset prices and an increase in the dispersion of future shocks to the economy. Both shocks are contractionary, but they operate through different channels. A CCyB that is reactivated early reduces the impact of an asset price shock the most. In contrast, a CCyB that is reactivated late reduces the impact of a volatility shock the most.


The COVID-19 crises reduces Danish growth potential

Due to the covid19-crisis, it is projected that Danish potential GDP will grow at a slower pace in the coming years. Potential GDP is reduced by 1.1 per cent in 2022 compared to Nationalbanken's forecast from before the covid19 outbreak. The downward revision reflects a decline in structural employment as well as productivity. (Memo available in Danish only)


Households' disposable income is supported by compensation schemes for the corporate sector

Since the partial shutdown of Denmark following the covid-19 outbreak, the Parliament has passed several temporary compensation schemes to support companies and sustain employment. Based on simulations using the macroeconometric model ADAM, we find that the compensation schemes can strengthen household disposable income by approx. kr. 15 billion in 2020. (Memo available in Danish only)


Large drop in Danish exports, but the composition might ease the fall

Danish exports are expected to decline significantly in the coming quarters. However, the composition of Danish exports might ease the fall. Exports of goods account for the majority of Danish exports and are less affected as they largely consist of less cyclical goods. More cyclically sensitive exports are also more employment intensive, and hence employment in export-oriented industries will be hit harder than the actual value of exports. (Memo available in Danish only)


Coronavirus temporarily lowers private consumption

The corona epidemic has reduced the consumption of Danish households, which will temporarily lower the consumption rate. For a prolonged period, Danish households have saved and are in general well equipped for a contraction of the Danish economy. Therefore, the consumption rate is expected to relatively quickly return to its pre-corona epidemic level. However, a longer lasting epidemic and contraction of the Danish economy can further reduce household consumption. (Memo available in Danish only)


Moderate setback on the housing market

The corona epidemic has caused a temporary reduction in housing market activity and a small drop in housing prices. However, stimulus packages and low interest rates continue to stimulate the demand for housing. Limited price decreases are therefore expected in 2020, and the price level is forecasted to rebound during 2021. Also, most owner-occupied dwellings have relatively low debt ratios, and only a small fraction of home buyers have been employed in industries that are currently very exposed. (Memo available in Danish only)


Internationale økonomisk-politiske tiltag under covid-19-krisen

Exceptionally large monetary and fiscal policy measures have been implemented globally to counteract the adverse economic consequences of the covid-19 crisis. The analysis first provides an overview of some of the measures taken to support liquidity and lending in the US, Germany, Sweden and Denmark. It then focuses on fiscal measures in the countries' stimulus packages that support demand directly. Finally, the use of state aid in the EU during the crisis is examined. (Memo available in Danish only)


Worker flows and reallocation in COVID-19 exposed sectors in the Danish economy

Past worker flows show that among the sectors hit hard by the COVID-19 epidemic, workers in "Transportation" accumulate relatively more human capital. In the event of large worker reallocation, this sector's productivity would be hit harder and need longer to recover due to the loss of firm and sector-specific knowledge and skills of the departing workers.


Liquidity Reserves of Danish Firms: implications during the COVID-19 epidemic

We analyse the distribution of internal liquidity reserves among Danish firms during normal times. The median firm has reserves covering about one month of "fixed capacity cost". About a third of firms have reserves close to zero. We show that cost and wage compensation schemes, as implemented in Denmark during the current coronavirus epidemic, substantially extend the duration of liquidity reserves for firms with some reserves. Firms with very low reserves have to rely on external sources of liquidity.

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