Central bank responses to COVID-19
- PDF / 1,390,246 Bytes
- 11 Pages / 595.276 x 790.866 pts Page_size
- 22 Downloads / 173 Views
ORIGINAL ARTICLE
Central bank responses to COVID‑19 Patricia C. Mosser1
© National Association for Business Economics 2020
Abstract Central bank responses to COVID-19 have been extraordinary in speed, in size and in scope. Much easier monetary policy, massive liquidity provision, and targeted credit support to the real economy all played a role in stabilizing financial conditions and credit. On net, there is preliminary evidence that central bank actions have been a positive—for access to credit and for the real economy—during very trying times. But the first six months have made clear that central bank policy can only indirectly address the core economic policy challenges of the crisis, whose trajectory remains highly uncertain. The risks to the economy and financial system remain very large, and key policy questions—on the degree of fiscal policy support to the real economy, about the limits of central bank risk taking and monetization of debt, and about the wisdom of heavy reliance on central bank policies given their impact on leverage and debt levels—remain just that. Keywords Monetary policy · Lender of last resort · Credit programs · COVID-19 · Central banks · Federal Reserve Central bank responses to COVID-19 have been extraordinary in speed, in size and in scope. The Federal Reserve announced as many emergency programs in eight days (March 14 to 23, 2020) as it did during all of 2008. Moreover, the Fed implemented more programs in 4 months than in the entire global financial crisis. On net, there is evidence that central bank actions have been a positive – for access to credit and for the real economy—during very trying times. But this early conclusion has two caveats: first, in a pandemic a central bank’s role is limited. At best it can cushion the blow via lending and easier financial conditions, and so provide a bridge to future economic recovery. But encouraging more leverage is a double-edge sword, since it can increase future fragility. Second, it is frankly too soon to make a serious judgment on the ultimate effectiveness of any particular set of economic policies—central bank or otherwise. Thanks to my colleagues in the Columbia University Finance Free Lunch and Macro Lunch Group seminars for comments on an earlier presentation of this material and to Charles Steindel for comments. Particular thanks to Johann Kerhousse and Doris Li for excellent research assistance. * Patricia C. Mosser [email protected] 1
School of International and Public Affairs, Columbia University, New York, USA
The size and speed of the response by the Fed and other central banks mirror the size and speed of the COVID-19 crisis. Typically, economic crises of this scale are preceded by financial crises. The 2007–2009 global financial crisis is a classic example; it started with a financial panic, which accelerated in spite of large central bank and fiscal interventions. The financial deterioration (panic) happened rapidly, but only over time did it drag the real economy down with it. This time exactly the opposite h
Data Loading...
