Lights out? COVID-19 containment policies and economic activity
with Robert C.M. Beyer and Tarun Jain
This paper estimates the impact of a differential relaxation of COVID-19 containment policies on aggregate economic activity in India. Following a uniform national lockdown, the Government of India classified all districts into three zones with varying containment measures in May 2020. Using a differences-in-differences approach, we estimate the impact of these restrictions on nighttime light intensity, a standard high-frequency proxy for economic activity. To conduct this analysis, we combine pandemic-era district-level data from a range of novel sources -- monthly nighttime lights from global satellites, Facebook's mobility data from individual smartphone locations, and high-frequency household-level survey data on income and consumption, supplemented with data from the Indian Census and the Reserve Bank of India. We find that nighttime light intensity in May was 12.4% lower for districts with the most severe restrictions and 1.7% lower for districts with intermediate restrictions, as compared to districts with the least restrictions. The differences were largest in May, when the different policies were in place, and slowly tapered in June and July. Restricted mobility and lower household income are plausible channels for these results. Stricter containment measures had larger impacts in districts with greater population density with older residents, as well as more services employment and bank credit.
Transmission of macroprudential regulations - Evidence from India
This paper studies how regulatory constraints - in the form of sector-wise macroprudential limits - affect aggregate loan supply. The study contributes a novel intensity-based measure of macroprudential policies, which yields more insightful and statistically significant results as compared to a dummy-based measure. Using an intensity measure of macroprudential regulations is advantageous for two reasons, i) to compare effectiveness across tools, and, ii) to what extent. Using a fixed-effect panel framework, supervisory bank information reveals that aggregate loan supply decreases by 8% in response to 1% tightening of macroprudential index typically after a quarter's lag, and the effect lasts till the third quarter. Policy effectiveness varies in response to bank capitalisation and ownership, but not size. At the bank-firm level, banks tend to weed out low quality borrower (firms) with stricter prudential regulations, particularly for short-term firm financing. Finally, the paper addresses pertinent questions like interaction of macroprudential regulations with monetary policy and symmetry of effect for the Indian case.