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This paper presents a fear theory of the economy, based on the interplay between fear of rare disasters and the interest rate on safe assets. To do this, I study the macroeconomic consequences of government-administered interest rates in the neoclassical real business cycle model. When the government has the power to fix the safe real interest rate, the gap between the `sticky real safe rate' and the `neutral rate' can generate far-reaching aggregate distortions. When fear exogenously rises, the demand for safe assets rise and the neutral rate falls. If the central bank does not lower the safe rate by the same amount, savings rise leading to a decline in consumption and aggregate demand. The same mechanism works in reverse, when fear falls. Quantitatively, I show that a single fear factor can simultaneously (i) generate cross-correlations in output, labor, consumption, and investment consistent with the postwar US economy; and (ii) generates variation in equity prices, bond prices, and a large risk premium in line with the asset pricing data. Six novel insights emerge from the model: (1) actively regulating the safe interest rate (in both directions) can mitigate the fluctuations generated by fear cycles; (2) recessions will be deeper and longer when central banks accept the zero lower bound and are unwilling to use negative rates; (3) a commitment to use negative rates in recessions—even if never implemented—raises both the short- and long-run real neutral rates, and moderates the business cycle; (4) counter-cyclical fiscal policy can act as disaster insurance and be expansionary by reducing fear; (5) quantitative easing can be narrowly effective only when fear is high at the lower bound; and (6) when fear is high, especially at the lower bound, policies that boost productivity also help fight recessions.

Macroeconomics --- Economics: General --- Production and Operations Management --- Banks and Banking --- Money and Monetary Policy --- Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) --- Money and Interest Rates: General --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General --- General Financial Markets: General (includes Measurement and Data) --- Financial Crises --- Interest Rates: Determination, Term Structure, and Effects --- Macroeconomics: Production --- Macroeconomics: Consumption --- Saving --- Wealth --- Business Fluctuations --- Cycles --- Economic & financial crises & disasters --- Economics of specific sectors --- Finance --- Monetary economics --- Economic growth --- Output gap --- Production --- Consumption --- National accounts --- Zero lower bound --- Financial services --- Interest rate floor --- Monetary policy --- Yield curve --- Currency crises --- Informal sector --- Economics --- Interest rates --- Economic theory --- Business cycles --- Recessions

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The experience of the Great Recession and its aftermath revealed that a lower bound on interest rates can be a serious obstacle for fighting recessions. However, the zero lower bound is not a law of nature; it is a policy choice. The central message of this paper is that with readily available tools a central bank can enable deep negative rates whenever needed—thus maintaining the power of monetary policy in the future to end recessions within a short time. This paper demonstrates that a subset of these tools can have a big effect in enabling deep negative rates with administratively small actions on the part of the central bank. To that end, we (i) survey approaches to enable deep negative rates discussed in the literature and present new approaches; (ii) establish how a subset of these approaches allows enabling negative rates while remaining at a minimum distance from the current paper currency policy and minimizing the political costs; (iii) discuss why standard transmission mechanisms from interest rates to aggregate demand are likely to remain unchanged in deep negative rate territory; and (iv) present communication tools that central banks can use both now and in the event to facilitate broader political acceptance of negative interest rate policy at the onset of the next serious recession.

Economic policy. --- Economic nationalism --- Economic planning --- National planning --- State planning --- Economics --- Planning --- National security --- Social policy --- Banks and Banking --- Money and Monetary Policy --- Industries: Financial Services --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Interest Rates: Determination, Term Structure, and Effects --- Monetary economics --- Banking --- Distributed ledgers --- Finance --- Currencies --- Negative interest rates --- Digital currencies --- Central bank policy rate --- Money --- Monetary policy --- Technology --- Financial services --- Zero lower bound --- Banks and banking --- Interest rates --- Financial services industry --- Technological innovations --- United States

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Firms in the S&P 500 often announce layoffs within days of one another, despite the fact that the average S&P 500 constituent announces layoffs once every 5 years. By contrast, similarsized privately-held firms do not behave in this way. This paper provides empirical evidence that such clustering behavior is largely due to CEOs managing their reputation in financial markets. To interpret these results we develop a theoretical framework in which managers delay layoffs during good economic states to avoid damaging the markets perception of their ability. The model predicts clustering in the timing of layoff announcements, and illustrates a mechanism through which the cyclicality of firms layoff policies is amplified. Our findings suggest that reputation management is an important driver of layoff policies both at daily frequencies and over the business cycle, and can have significant macroeconomic consequences.

Layoff systems. --- Chief executive officers. --- CEOs (Executives) --- Executive officers, Chief --- Executives --- Employees --- Job security --- Dismissal of --- Layoff systems --- Corporations --- Chief executive officers --- Business corporations --- C corporations --- Corporations, Business --- Corporations, Public --- Limited companies --- Publicly held corporations --- Publicly traded corporations --- Public limited companies --- Stock corporations --- Subchapter C corporations --- Business enterprises --- Corporate power --- Disincorporation --- Stocks --- Trusts, Industrial --- E-books --- Finance: General --- Labor --- Macroeconomics --- Labor Turnover --- Vacancies --- Layoffs --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Information and Market Efficiency --- Event Studies --- Business Fluctuations --- Cycles --- Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) --- Labor Force and Employment, Size, and Structure --- General Financial Markets: General (includes Measurement and Data) --- Labor Economics: General --- Wages, Compensation, and Labor Costs: General --- Economic growth --- Labour --- income economics --- Finance --- Business cycles --- Labor force --- Stock markets --- Wages --- Financial markets --- Labor market --- Stock exchanges --- Labor economics --- United States

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Urgent steps are needed to arrest the rising human toll and economic strain from the COVID-19 pandemic that are exacerbating already-diverging recoveries. Pandemic policy is also economic policy as there is no durable end to the economic crisis without an end to the health crisis. Building on existing initiatives, this paper proposes pragmatic actions at the national and multilateral level to expeditiously defeat the pandemic. The proposal targets: (1) vaccinating at least 40 percent of the population in all countries by the end of 2021 and at least 60 percent by the first half of 2022, (2) tracking and insuring against downside risks, and (3) ensuring widespread testing and tracing, maintaining adequate stocks of therapeutics, and enforcing public health measures in places where vaccine coverage is low. The benefits of such measures at about $9 trillion far outweigh the costs which are estimated to be around $50 billion—of which $35 billion should be paid by grants from donors and the residual by national governments potentially with the support of concessional financing from bilateral and multilateral agencies. The grant funding gap identified by the Access to COVID-19 Tools (ACT) Accelerator amounts to about $22 billion, which the G20 recognizes as important to address. This leaves an estimated $13 billion in additional grant contributions needed to finance our proposal. Importantly, the strategy requires global cooperation to secure upfront financing, upfront vaccine donations, and at-risk investment to insure against downside risks for the world.

Macroeconomics --- Economics: General --- Diseases: Contagious --- Demography --- Industries: Manufacturing --- Publicly Provided Goods: General --- Health: General --- Economic Growth and Aggregate Productivity: General --- Industry Studies: Manufacturing: General --- Health Behavior --- Demographic Economics: General --- Aggregate Factor Income Distribution --- Economic & financial crises & disasters --- Economics of specific sectors --- Infectious & contagious diseases --- Health economics --- Population & demography --- Manufacturing industries --- Financial crises --- Economic sectors --- Health --- Population and demographics --- National accounts --- Crisis management --- Natural disasters --- Communicable diseases --- Population --- Income --- India

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Pandemics and epidemics pose risks to lives, societies, and economies, and their frequency is expected to increase as rising trade and increased human interaction with animals leads to the emergence of new diseases. The COVID-19 pandemic teaches us that we can and must be better prepared, with scope for much greater global coordination to address the financing, supply-chain, and trade barriers that amplified the pandemic’s economic costs and contributed to the emergence of new variants. This paper draws seven early lessons from the COVID-19 pandemic that could inform future policy priorities and help shape a better global response to future crises.

Macroeconomics --- Economics: General --- Diseases: Contagious --- Health Policy --- Exports and Imports --- Publicly Provided Goods: General --- Health: General --- Industry Studies: Manufacturing: General --- Economic Growth and Aggregate Productivity: General --- Health Behavior --- Analysis of Health Care Markets --- Macroeconomic Aspects of International Trade and Finance: General --- Economic & financial crises & disasters --- Economics of specific sectors --- Infectious & contagious diseases --- Health systems & services --- Health economics --- International economics --- COVID-19 --- Health --- Health care --- Trade finance --- International trade --- Currency crises --- Informal sector --- Economics --- Communicable diseases --- Medical care --- International finance --- India