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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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There has been much discussion about eliminating the “zero lower bound” by eliminating paper currency. But such a radical and difficult approach as eliminating paper currency is not necessary. Much as during the Great Depression—when countries were able to revive their economies by going off the gold standard—all that is needed to empower monetary policy to cut interest rates as much as needed for economic stimulus now is to change from a paper standard to an electronic money standard, and to be willing to have paper currency go away from par. This paper develops the idea further and shows how such a mechanism can be implemented in a minimalist way by using a time-varying paper currency deposit fee between private banks and the central bank. This allows the central bank to create a crawling-peg exchange rate between paper currency and electronic money; the paper currency interest rate can be either lowered below zero or raised above zero. Such an ability to vary the paper currency interest rate along with other key interest rates, makes it possible to stimulate investment and net exports as much as needed to revive the economy, even when inflation, interest rates, and economic activity are quite low, as they are currently in many countries. The paper also examines different options available to the central bank to return to par when negative interest rates are no longer needed, and the associated implications for the financial sector and debt contracts. Finally, the paper discusses various legal, political, and economic challenges of putting in place such a framework and how policymakers could address them.

Banks and Banking --- Money and Monetary Policy --- Industries: Financial Services --- Inflation --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Interest Rates: Determination, Term Structure, and Effects --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Price Level --- Deflation --- Monetary economics --- Finance --- Distributed ledgers --- Banking --- Macroeconomics --- Currencies --- Zero lower bound --- Digital currencies --- Negative interest rates --- Money --- Financial services --- Technology --- Monetary policy --- Prices --- Interest rates --- Financial services industry --- Technological innovations --- Banks and banking --- Japan

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The advancement of the knowledge frontier is crucial for technological innovation and human progress. Using novel data from the setting of mathematics, this paper establishes two results. First, we document that individuals who demonstrate exceptional talent in their teenage years have an irreplaceable ability to create new ideas over their lifetime, suggesting that talent is a central ingredient in the production of knowledge. Second, such talented individuals born in low- or middle-income countries are systematically less likely to become knowledge producers. Our findings suggest that policies to encourage exceptionally-talented youth to pursue scientific careers—especially those from lower income countries—could accelerate the advancement of the knowledge frontier.

Knowledge management. --- Management of knowledge assets --- Management --- Information technology --- Intellectual capital --- Organizational learning --- Investments: Metals --- Macroeconomics --- Taxation --- Education and Economic Development --- Human Capital --- Skills --- Occupational Choice --- Labor Productivity --- Personal Income, Wealth, and Their Distributions --- Metals and Metal Products --- Cement --- Glass --- Ceramics --- Education: General --- Taxation, Subsidies, and Revenue: General --- Investment & securities --- Education --- Public finance & taxation --- Personal income --- Gold --- Silver --- Tax incentives --- National accounts --- Commodities --- Income --- France

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A lack of timely financing for purchases of vaccines and other health products impeded the global response to the COVID-19 pandemic. Based on analysis of contract signature and delivery dates in COVID-19 vaccine advance purchase agreements, this paper finds that 60-75 percent of the delay in vaccine deliveries to low- and middle-income countries is attributable to their signing purchase agreements later than high-income countries, which placed them further behind in the delivery line. A pandemic Advance Commitment Facility with access to a credit line on day-zero of the next pandemic could allow low- and middle-income countries to secure orders earlier, ensuring a much faster and equitable global response than during COVD-19. The paper outlines four options for a financier to absorb some or all of the risk associated with the credit line and discusses how the credit would complement other proposals to strengthen the financing architecture for pandemic preparedness, prevention, and response.

Macroeconomics --- Economics: General --- Diseases: Contagious --- Industries: Financial Services --- Demography --- Publicly Provided Goods: General --- Health: General --- Industry Studies: Manufacturing: General --- Economic Growth and Aggregate Productivity: General --- Health Behavior --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Demographic Economics: General --- Economic & financial crises & disasters --- Economics of specific sectors --- Infectious & contagious diseases --- Finance --- Health economics --- Population & demography --- COVID-19 --- Health --- Lines of credit --- Financial institutions --- Population and demographics --- Currency crises --- Informal sector --- Economics --- Communicable diseases --- Loans --- Population --- India

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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.

Crisis management. --- Aggregate Factor Income Distribution --- Communicable diseases --- Covid-19 --- Crisis management --- Demographic Economics: General --- Demography --- Diseases: Contagious --- Economic & financial crises & disasters --- Economic Growth and Aggregate Productivity: General --- Economic sectors --- Economics of specific sectors --- Economics: General --- Financial crises --- Health Behavior --- Health economics --- Health --- Health: General --- Income --- Industries: Manufacturing --- Industry Studies: Manufacturing: General --- Infectious & contagious diseases --- Macroeconomics --- Manufacturing industries --- Manufacturing --- National accounts --- Natural disasters --- Population & demography --- Population and demographics --- Population --- Publicly Provided Goods: General --- India