The Determinants of Fiscal and Monetary Policies During the COVID-19 Crisis

44 Pages Posted: 26 Jun 2020 Last revised: 6 Jan 2021

Date Written: June 24, 2020

Abstract

As countries around the world grapple with Covid-19, their economies are grinding to a halt. For the first time since the Great Depression both advanced economies and developing economies are in recession. Governments and central banks have responded to the pandemic and the economic crisis using both fiscal and monetary tools on a scale that the world has not witnessed before. This paper analyzes the determinants of fiscal and monetary policies during the Covid-19 crisis. We find that high-income countries announced larger fiscal policies than lower-income countries and that the ability to deploy fiscal policies when short-term rates are ultra-low is limited by a country’s access to credit markets. These findings raise the concern that countries with poor credit histories – those with lower credit ratings and, in particular, lower-income countries – will not be able to deploy fiscal policy tools effectively during economic crises.

Suggested Citation

Benmelech, Efraim and Tzur-Ilan, Nitzan, The Determinants of Fiscal and Monetary Policies During the COVID-19 Crisis (June 24, 2020). Available at SSRN: https://ssrn.com/abstract=3634549 or http://dx.doi.org/10.2139/ssrn.3634549

Efraim Benmelech (Contact Author)

Northwestern University - Kellogg School of Management ( email )

Evanston, IL 60208
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Nitzan Tzur-Ilan

Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

HOME PAGE: http://nitzantzur-ilan.com

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