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Bankruptcies, unemployment and reallocation from Covid-19

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BIS Bulletin  |  No 31  |  13 October 2020 by  Ryan Niladri Banerjee, Enisse Kharroubi and Ulf Lewrick PDF full text (653kb)  |  9 pages Key takeaways The expected wave of business failures in the Covid-19 recession has yet to materialise, due in part to policy support, but also reflecting the inherent lag between declines in GDP and insolvencies. Bankruptcies weigh heavily on labour markets. Unemployment typically increases three times more if a fall in GDP is accompanied by a similar-sized increase in bankruptcies. Concentration of

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BIS Bulletin  |  No 31  | 
13 October 2020
PDF full text
 (653kb)
 |  9 pages

Key takeaways

  • The expected wave of business failures in the Covid-19 recession has yet to materialise, due in part to policy support, but also reflecting the inherent lag between declines in GDP and insolvencies.
  • Bankruptcies weigh heavily on labour markets. Unemployment typically increases three times more if a fall in GDP is accompanied by a similar-sized increase in bankruptcies.
  • Concentration of bankruptcies in those sectors hit especially hard by Covid-19 could exert a significant drag on the labour market.
  • The natural renewal process where young, dynamic firms displace those who exited takes two to three years, leaving a protracted period of lacklustre activity. This underscores the need to reallocate resources quickly and efficiently to drive growth in the post-pandemic world.
International Settlement
The Bank for International Settlements (BIS) is an international company limited by shares owned by central banks which "fosters international monetary and financial cooperation and serves as a bank for central banks". The BIS carries out its work through subcommittees, the secretariats it hosts and through an annual general meeting of all member banks. It also provides banking services, but only to central banks and other international organizations. It is based in Basel, Switzerland, with representative offices in Hong Kong and Mexico City.

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