Journal of Business Accounting and Finance Perspectives

(ISSN: 2603-7475) Open Access Journal
JBAFP 2020, 2(3), 18; doi: 10.35995/jbafp2030018

Monetary and Fiscal Policies in the COVID-19 Crisis. Will They Work?

1 Professor Global Macroeconomics, IE Business School;
* Author to whom correspondence should be addressed.
Received: 20 Apr 2020 / Revised: 17 Jun 2020 / Accepted: 2020-04-22 / Published: 2020-06-20
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ABSTRACT

The spread and mortality rate of the COVID-19 virus has created enormous strains on global healthcare systems and driven governments to take extreme measures to contain the virus, including the lock down of most citizens and shutting down most economic sectors. Due to these unique challenges and coming from an economy that was weak already in 2018 and 2019, the world faces a global crisis of unprecedented impact and high uncertainty about the recovery process. In this paper, we analyze how the world economy is addressing the COVID-19 pandemic. We start with the situation of the main economic regions at the end of last year to understand the tools available to fight against what could be the worst crisis since World War II, according to the IMF1. Moreover, we review the estimated economic impact of COVID-19, as well as the expected recovery and its time frame. Additionally, we reflect on the fiscal and monetary measures adopted by different countries, especially G7 economies, to tackle the crisis. Finally, we discuss the optimal policies to overcome the situation and advance towards economic recovery and the stabilization of public finances. This crisis is a supply shock added to a forced shutdown of the economy. As such, traditional tools to boost credit demand and usual demand-side policies alone are likely to generate little positive effect, as any aggregate demand that may be incentivized will not likely be followed by aggregate supply. A combination of demand-side and supply-side measures may prove to be more effective to boost the recovery after the pandemic.
Keywords: aggregate demand; aggregate supply; COVID-19; coronavirus; fiscal policy; monetary stimulus; central banks; government; crisis; recovery; demand-side; supply-side
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).
CITE
Lacalle, D. Monetary and Fiscal Policies in the COVID-19 Crisis. Will They Work? JBAFP 2020, 2, 18.
Lacalle D. Monetary and Fiscal Policies in the COVID-19 Crisis. Will They Work? Journal of Business Accounting and Finance Perspectives. 2020; 2(3):18.
Lacalle, Daniel. 2020. "Monetary and Fiscal Policies in the COVID-19 Crisis. Will They Work?" JBAFP 2, no. 3: 18.
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