The New Coronary Pneumonia epidemic that is currently spreading around the world is already the worst global pandemic since the Spanish flu in 1918. What long-term impact will this epidemic have on the global economy?

Looking back, the world has experienced 15 major pandemics including the Black Death since the 14th century. The duration of these pandemics can range from a year or two to ten years. However, their impact on the economy can last for decades.

On March 26, the San Francisco Federal Reserve website published a working paper “Longer-run economic consequences of pandemics.” The author of the paper is Oscar Jorda and other three researchers at the University of California, Davis. Oscar Jorda also serves the San Francisco Federal Reserve, but the above working paper only represents personal views.

The above paper examines the impact of 15 major pandemics (more than 100,000 deaths) on real natural interest rates since the 14th century. Modern macroeconomic theory holds that the natural interest rate is equal to the actual rate of return on safe assets, that is, the actual rate of return on safe assets when the supply of savings and investment reach equilibrium when prices are stable.

In terms of case studies, the most devastating Black Death has attracted a lot of attention, and economists and historians have discussed their impact on economic, social, and political changes Start a debate. The Black Death caused a drop in labor supply in England by 25% -40%, real wages rose by 100%, and land returns fell by 8% -5%.

Combining 15 pandemic data, the above research shows that the macro-impact of a pandemic can last for 40 years, and it leads to a substantial decline in the actual rate of return < / strong>. In contrast, the war has no such consequences. On the contrary, the actual rate of return after the war has risen.


For the reasons for the long-term return on investment from pandemics, the above paper stated that insufficient labor will suppress the need for high investment, thus weakening investment demand. At the same time, savers will increase their savings because of preventive motives or to make up for lost wealth in disasters.


Table 1 15 major global pandemics since the 14th century

Based on data from major European countries, the above paper estimates that, overall, European natural interest rates show a downward trend, from about 10% in the medieval period, to 5% at the beginning of the industrial revolution, and then to the current close to 0 %.


Figure 1 The trend of real natural interest rates in Europe since the 14th century

It is estimated that the impact of the pandemic on European natural interest rates has been for 40 years. After the pandemic occurred, the natural interest rate began to decline and reached its lowest point in about 20 years. Compared with the situation without a pandemic, the natural interest rate at this time was about 2% lower; after 40 years, the impact of the pandemic disappeared .


Figure 2 Trend of pandemic impact on real natural interest rates in Europe


What are the differences in the impact of the pandemic on different countries?

The above paper also has an interesting discovery.


France, Italy, Spain and other countries are more affected by the pandemic (3% -4%); Germany, the Netherlands, the United Kingdom and other Anglo-Saxon countries are affected more moderately. The heterogeneity of the results reflects some other explanations: the time of the pandemic varies from country to country, the severity of the pandemic encountered varies, the size of the labor force varies, the degree of industrialization varies, etc. .


Figure 3 The impact of the pandemic on real natural interest rates in European countries

above The research shows that the impact of the pandemic on real wages is almost a mirror image of its impact on natural interest rates. Real wages increased slowly until 30 years after the pandemic occurred, the cumulative deviation reached a peak of about 5%.


Figure 4 The effect of the pandemic on real wages in Europe


Pandemic and war

Considering the correlation between war and pandemic, for example, the lack of material caused by war is more likely to cause disease; In addition, interest rates will also be affected by the war. The large-scale financing burden caused by the war will lead to higher real interest rates, such as through crowding-out effects, risk premiums, or simply capital shortages caused by war destruction.

In order to eliminate these effects, the above study re-estimated after controlling the war variables. Research shows that the results are still robust, and the impact of the pandemic on real natural interest rates is consistent with previous estimates. The effect of war on natural interest rates is reversed: wars cause real interest rates to rise in the next 30-40 years.


Figure 5 Impact of pandemic and war on real natural interest rates in Europe


Will New Crown Pneumonia be different?

If the impact of the New Crown Pneumonia is similar to a pandemic in history, the results of the above paper show that the global The economy will be completely different from previous expectations. If real interest rates remain low for decades to come, it will bring pleasant fiscal space for the government to mitigate the consequences of the pandemic.

The above paper also warns that when there was a pandemic in the past, there were very few elderly people. Most people attacked by the Black Death and other plagues are younger than 60 years old, and the New Crown epidemic is the opposite. Older ages are more threatened.


Oscar told Peng Mei News that the impact of the new crown epidemic on natural interest rates may be less than the historical epidemic, but the impact will be as long. Large-scale fiscal stimulus will partially offset the impact of the pandemic on natural interest rates. He also said that the impact of the pandemic on natural interest rates comes more from preventive savings and the reconstruction of lost wealth than death.