Spero Consulting

Last week we wrote two related posts: A New Influenza Stress Test and Influenza Pan­demic Stress Test, Part II. Both posts dis­cuss the need for banks to per­form stress tests/​scenario analy­ses that incor­po­rate the pos­si­ble neg­a­tive eco­nomic effects of a flu pan­demic in addi­tional to con­sid­er­a­tion of pos­si­ble addi­tional struc­tural weak­nesses (and shrink­age) in the economy.

In the sec­ond post, we men­tioned a gov­ern­ment study from a few years ago that esti­mated a five per­cent con­trac­tion in GDP if the USA faced a severe pan­demic. (In our best Jack Nicholson/​A Few Good Men courtroom-​scene imper­son­ation, we ask: is there any other kind of pan­demic, Danny?)

In today’s edi­tion of The Wall Street Jour­nal, Robert J. Barro and Jose F. Ursula pro­vide addi­tional evi­dence of the pos­si­ble neg­a­tive effects of a pan­demic in Pan­demics and Depres­sions. In it they pro­vide esti­mates of the his­tor­i­cal costs of such out­breaks. Well worth reading.

We’ll have more to say about the stress tests in our next post. The past week’s events pro­vide evi­dence to con­firm one of our hypothe­ses from a post one month ago when we asked Where Will the Bank Stress Test­ing Exer­cise Lead?