Benjamin Moll's picture
Affiliation: 
London School of Economics

Voting history

Effects of an embargo on Russian gas

Question 3: By how much would an immediate EU-wide import ban on Russian gas reduce EU GDP growth per annum in 2022-3, in percentage points (pp), absent other policies?

Answer:
Between 1pp and 3pp
Confidence level:
Not confident
Comment:
Germany is more dependent on Russian gas than most other EU countries. This suggests that the GDP losses for the other countries should be bounded above by those for Germany. At the same time, I am less confident about this because I have not had the chance to look at the data (both on energy dependence and the sectoral makeup of the economy) and conduct detailed simulations with all the necessary due diligence for other EU countries in the way we did for Germany. In a report with David Baqaee, Camille Landais and Philippe Martin that we wrote for the French Council of Economic Advisors https://www.cae-eco.fr/staticfiles/pdf/cae-focus84.pdf, we did look at France in more detail, a country that is considerably less dependent on Russian gas than Germany. Our results are consistent with the intuition that the numbers for such countries are smaller than those for Germany. Given this, my very rough guess would be for EU-wide GDP losses from a gas import ban to be in the range between 0.5% and 2% of GDP.

Question 2: By how much would an immediate EU-wide import ban on Russian gas reduce German GDP growth per annum in 2022-3, in percentage points (pp), if the government offset the costs with a well-targeted fiscal policy?

Answer:
Between 1pp and 3pp
Confidence level:
Confident
Comment:
Similar reasoning as in response to the previous question. Well-targeted fiscal policy could arguably undo some of the Keynesian aggregate demand amplification discussed there. At the same time, this is still fundamentally a negative shock to aggregate supply so fiscal policy would not be able to *undo* the shock and reduce GDP losses below the 1% to 3% range. I would argue that GDP losses with well-targeted fiscal policy would likely lie somewhere in the 1% to 2.5% range.

Question 1: By how much would an immediate EU-wide import ban on Russian gas reduce German GDP growth per annum in 2022-3, in percentage points (pp), absent other policies?

Answer:
Between 1pp and 3pp
Confidence level:
Confident
Comment:
A GDP decline in the range from 1% to 3% is roughly what we argued for in our work on the question (Bachmann et al, 2022). In fact, the numbers coming out of the Baqaee-Farhi supply chain model are around 1% (see in particular the sufficient-statistics calculations here https://benjaminmoll.com/what_if_slides/). More pessimistic calculations using an aggregate production function yield a GDP loss of 2.2%. Because our models leave out a number of potentially important mechanisms, in particular standard Keynesian demand amplification mechanisms, we rounded this number up to 3% so as to leave ourselves a "safety margin." Subsequent work by Bayer, Kriwoluzky and Seyrich addressed exactly this criticism and found that the economic cost of an import stop still remains below 3% of yearly GDP. Other studies find numbers in roughly the same range, though some in the 3%-5% range. See https://benjaminmoll.com/RussianGas_literature/ for a review. The very well done "Gemeinschaftsdiagnose" finds a smaller number for the year 2022, namely -0.8%, and a larger number for the year 2023, namely -5.3%, so 3.05% on average across the two years. Of course, any model-based quantitative assessment of such a question is necessarily subject to considerable uncertainty which is why I selected "Confident" rather than "Very Confident" or "Extremely Confident".That being said, I am "Extremely Confident" that the GDP decline would not exceed 10% (which was one of the options from which to choose).

Lockdowns and UK Economic Performance

Question 3: Using not only the policy tools that have been part of the UK policy mix thus far but also policy tools implemented in other countries, to what extent does the government face a tradeoff between saving lives and preserving livelihoods? 

Answer:
No tradeoff at all
Confidence level:
Confident
Comment:
Let me comment on questions 2 and 3 jointly. My view is that: (a) there likely *is* a tradeoff between "saving lives" and "preserving livelihoods" if the primary policy tool being used are blunt lockdown measures (and those measures are used only to slow down virus spread as opposed to eliminate it or bring it to levels that are low enough to manage without lockdowns, i.e. without an "endgame plan"); but (b) that, at the same time, there isn't necessarily a tradeoff once other policy tools are included in the policy mix and, in fact, lives and livelihoods can go hand in hand. Turning to question 2, consistent with this, I do expect the current UK lockdown measures (that shut down the entire hospitality industry and non-essential shops) to have a negative effect on economic activity, even relative to a counterfactual with milder measures that factors in behavioral responses to the pandemic (which would likely be much larger with such milder measure). I think that everything else would just be wishful thinking. For more background, see e.g. "choosing among lockdowns only = choosing among set of bad options" in these slides https://benjaminmoll.com/epi_macro_takeaways/. Or as a recent paper by Berger, Herkenhoff, Huang & Mongey shorturl.at/kntQS put it nicely: "Theories of economic-activity vs. mortality trade-offs with only a lock-down policy available to the policy-maker are hence necessarily discussions of second best policies." The fundamental problem with lockdown-only strategies is that (a) the policy maker can only stop intervening once the population immunity threshold is reached and this takes a long time and (b) long or intermittent lockdowns are costly. See e.g. slide 48 here https://benjaminmoll.com/SIR_notes/. Turning to question 3, and also consistent with this, I think that with a broader policy mix lives and livelihoods can go hand in hand. Though I'm generally extremely skeptical of cross-country correlations, they are suggestive in this regard (see e.g. the Fernandez-Villaverde and Jones paper https://web.stanford.edu/~chadj/MacroCovid.pdf). What seems to be important is to have some sort of an endgame plan, in particular a plan that keeps the disease under control or eliminates it even before reaching population immunity. For example, a New-Zealand-style disease elimination strategy that closes borders and then aims to eliminate the disease within geographic borders seems like a pretty good option, precisely because it can stop intervention before reaching population immunity, see e.g. slides 45-47 here https://benjaminmoll.com/SIR_notes/ (in the UK this seems to have never been on the table though). Also see slides 49-50 for alternative policy options.

Question 2: How much will the new lockdown measures introduced on Thursday November 5 hurt UK economic activity this year relative to a counterfactual with the milder measures adopted over the summer?

Answer:
Small damage
Confidence level:
Confident
Comment:
Let me comment on questions 2 and 3 jointly. My view is that: (a) there likely *is* a tradeoff between "saving lives" and "preserving livelihoods" if the primary policy tool being used are blunt lockdown measures (and those measures are used only to slow down virus spread as opposed to eliminate it or bring it to levels that are low enough to manage without lockdowns, i.e. without an "endgame plan"); but (b) that, at the same time, there isn't necessarily a tradeoff once other policy tools are included in the policy mix and, in fact, lives and livelihoods can go hand in hand. Turning to question 2, consistent with this, I do expect the current UK lockdown measures (that shut down the entire hospitality industry and non-essential shops) to have a negative effect on economic activity, even relative to a counterfactual with milder measures that factors in behavioral responses to the pandemic (which would likely be much larger with such milder measure). I think that everything else would just be wishful thinking. For more background, see e.g. "choosing among lockdowns only = choosing among set of bad options" in these slides https://benjaminmoll.com/epi_macro_takeaways/. Or as a recent paper by Berger, Herkenhoff, Huang & Mongey shorturl.at/kntQS put it nicely: "Theories of economic-activity vs. mortality trade-offs with only a lock-down policy available to the policy-maker are hence necessarily discussions of second best policies." The fundamental problem with lockdown-only strategies is that (a) the policy maker can only stop intervening once the population immunity threshold is reached and this takes a long time and (b) long or intermittent lockdowns are costly. See e.g. slide 48 here https://benjaminmoll.com/SIR_notes/. Turning to question 3, and also consistent with this, I think that with a broader policy mix lives and livelihoods can go hand in hand. Though I'm generally extremely skeptical of cross-country correlations, they are suggestive in this regard (see e.g. the Fernandez-Villaverde and Jones paper https://web.stanford.edu/~chadj/MacroCovid.pdf). What seems to be important is to have some sort of an endgame plan, in particular a plan that keeps the disease under control or eliminates it even before reaching population immunity. For example, a New-Zealand-style disease elimination strategy that closes borders and then aims to eliminate the disease within geographic borders seems like a pretty good option, precisely because it can stop intervention before reaching population immunity, see e.g. slides 45-47 here https://benjaminmoll.com/SIR_notes/ (in the UK this seems to have never been on the table though). Also see slides 49-50 for alternative policy options.

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