The Determinants of Fiscal and Monetary Policies During the Covid-19 Crisis / Efraim Benmelech, Nitzan Tzur-Ilan.

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Benmelech, Efraim

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TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w27461.Publication details: Cambridge, Mass. National Bureau of Economic Research 2020.Description: 1 online resource: illustrations (black and white)Subject(s):

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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. We also find that a country's credit rating is the most important determinant of its fiscal spending during the pandemic. High-income countries entered the crisis with historically low interest rates and as a result were more likely to use nonconventional monetary policy tools. 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.

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July 2020.

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. We also find that a country's credit rating is the most important determinant of its fiscal spending during the pandemic. High-income countries entered the crisis with historically low interest rates and as a result were more likely to use nonconventional monetary policy tools. 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.