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Another year like no other

A round-up of the ten most-viewed articles on the ECO website in 2021.

Newsletter from 17 December 2021

To round off our work this year, we thought we would look back over the past 12 months and highlight the ten most-viewed articles on our website. The topics covered are broad: from the effects of Covid-19 on various aspects of the economy to the rise of cryptocurrencies such as Bitcoin and Dogecoin.

In 2022, we will continue to publish pieces on the big challenges facing UK policy-makers and the public that can be informed by insights from economic analysis and research evidence. For now, we hope you enjoy looking back over some past material.

10. Externalities: why do we need coordinated public action in the pandemic?

Flavio Toxvaerd (University of Cambridge) argues that with infectious diseases like Covid-19, how one person behaves necessarily affects the wellbeing of others – what economists call ‘externalities’).

To achieve positive outcomes for society as a whole, it is not enough to rely on individuals’ incentives to protect themselves. From mask wearing to getting vaccinated, externalities and their effective management remain highly topical.

9. What does 95% effective mean for a Covid-19 vaccine?

The flurry of announcements of new vaccine technologies in late 2020 saw much of the media’s attention shift to the varying effectiveness of different brands. But what does it actually mean for a vaccine to be X% effective?

Debopam Bhattacharya (University of Cambridge) explains that the rate – say 95% – is not your chance of staying Covid-free after vaccination: rather, it estimates how much your chance rises relative to not being vaccinated. With a 95% effective vaccine, your chance of staying Covid-free is in fact 99.96%.

Recent news of diminishing protection and the threat of new variants (such as Omicron) highlights the need for further research to understand the long-run effectiveness of the jab.

8. How is coronavirus affecting the insurance industry?

Mark Farrell (Queen’s University Belfast) highlights the disruption that Covid-19 has caused for insurance companies, not least as they are in the business of pricing risks and a pandemic was thought of as a low-probability event. He argues that the economic fallout from the crisis may act as a catalyst for positive change in the industry.

7. Dogecoin: what is it and does it have any value?

While Covid-19 remains the most pressing challenge facing the UK and global economies, new technologies such as cryptocurrencies have also been the subject of policy-maker and research interest over the last 12 months. One such currency is ‘Dogecoin’ – a so-called meme currency that began its life as a joke but is now ‘mined’ at a rate of 10,000 new coins every minute.

Andrew Urquhart (University of Reading) highlights the meteoric rise of Dogecoin. The chart below illustrates just how extreme the price rise of the currency has been, with volatility a clear feature of this new type of asset.

Figure 1: Price of Dogecoin (early 2021)

Source: CoinMarketCap

6. Are Bitcoin and other digital currencies the future of money?

Will Quinn (Queen’s University Belfast) discusses how the rising price of Bitcoin during the pandemic has renewed interest in private digital money. In his view, while it is unlikely that Bitcoin will replace existing currencies, the emergence of ‘cryptocurrencies’ and ‘stablecoins’ has prompted exploration of central bank digital currencies.

This is an area of debate that is likely to continue into 2022. Keep your eyes peeled for more Economics Observatory articles exploring ‘the future of money’.

5. How has Brexit affected the value of sterling?

Christopher Coyle (Queen’s University Belfast) explores the effects of Brexit on the value of sterling. He explains that since the Brexit vote in 2016, the exchange rate of the pound against other leading currencies has fallen significantly. This seems to reflect a generally negative outlook among international investors for the UK’s economic prospects outside the European Union.

The chart below displays the shock clearly, with the strength of the pound plummeting against the euro from early 2015 to early 2021. As with Covid-19, Brexit is likely to continue to pose substantial economic challenges to UK policy-makers, affecting everything from trade to consumer confidence and political stability.

Figure 2: Pound/euro daily exchange rate (2015Q1 to 2021Q1)

Source: Bloomberg

4. How has Covid-19 affected pubs, cafes and restaurants?

Throughout the crisis, pubs, cafes and restaurants have struggled, with restrictions put in place to curb the spread of the virus consistently undermining their business models.

Despite being effectively brought to a halt by lockdown, Jesse Matheson (University of Sheffield) and colleagues indicate that   there have been modest signs of recovery in the hospitality industry, but social distancing and widespread working from home continue to limit progress.

3. How has Covid-19 affected India’s economy?

The UK is not alone in its suffering during the pandemic. Back in the spring of 2021, attention turned to India, where surging cases of the then-new Delta variant triggered a horrific public health crisis and severe economic damage.

Swati Dhingra and Maitreesh Ghatak (both London School of Economics) have studied the effects of Covid-19 on the Indian economy, arguing that India was particularly hard hit by the second wave of the virus. They highlight how the sharp drop in GDP was the largest in the country’s history – see the chart below.

This dramatic contraction may still underestimate the economic damage experienced by the poorest households and fail to account for the effects on internal and global inequality.

Figure 3: Economics contraction in India and the world during the early stages of Covid-19

Source: World Economic Outlook, International Monetary Fund, April 2021.
Note: The gross domestic product (GDP) per capita, constant prices is measured at purchase power parity; 2017 international dollars. the GDP per capita of each series is normalised to 100 in 2011. The authors use population-weighted average as the aggregation method.

2. Which firms and industries have been most affected by Covid-19?

This data-driven piece by Lena Anayi (Bank of England), Nick Bloom (Stanford), Phillip Bunn (Bank of England), Paul Mizen (Nottingham), Myrto Oikonomou (Bank of England/University of Oxford), Pawel Smietanka (Bank of England) and Gregory Thwaites (Nottingham) offers a detailed overview of how different parts of the economy have been affected over the past year or so.

The researchers show how the damage felt by businesses across the country has not been equal. Certain sectors and certain firms within them have suffered more than others – and many have faced highly uncertain futures.

Focusing on the labour market impacts alone, the chart below highlights just how varied the damage has been, with accommodation and food services most reliant on government measures such as the furlough scheme.

Figure 4: The impact of Covid-19 on employees in different sectors

Source: Decision Maker Panel
Note: question ‘Approximately what percentage of your employees fall into the following categories?’ Respondents could assign their employees to the following categories: (i) Still employed but not required to work any hours (e.g. ‘on furlough’), (ii) Unable to work (e.g. due to sickness, self-isolation, childcare etc.), (iii) Continuing to work on business premises’. Monthly survey data from April 2020 to March 2021 were averaged.

1. How is coronavirus affecting the banking sector?

Thorsten Beck (formerly at Cass Business School and now at the European University Institute) explores how banks have been forced to adapt to the ever-changing challenges posed by the pandemic. Thorsten argues that while the banking sector has been negatively affected by the outbreak of Covid-19, it will continue to be instrumental in the post-pandemic recovery. In his view, the crisis will strengthen competitive pressures on banks by accelerating trends towards digitalisation and new financial service providers.

A thank you from us

In addition to these ten articles, we have over 450 other pieces that have been published since our launch at the start of June 2020, covering a vast number of topics.

In November, we reached an exciting milestone, with over one million views on our site. We are especially grateful to all our contributors, lead editors and wider editorial board for their hard work, and to our readers and subscribers for their support.

We will be posting a couple more pieces next week before we close up shop until the New Year. Over the next 12 months, we will continue to explore new challenges, as they emerge. Don’t forget that you can ask us a question on our website.

Thank you for reading, sharing and supporting the Economics Observatory. We wish you all the best for 2022!

Author: Charlie Meyrick
Picture by Kelly Sikkema on Unsplash
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