Global policy responses

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How have different governments around the world responded to the health and economic crisis and what are some of the innovative responses that will stimulate the economy and ensure a sustainable recovery?[vc_quotes layout=”accordion” 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title=”Moderator” el_class=””][vc_empty_space height=”10px”]

Key takeaways

Randy Kroszner

• Everyone wants to know whether we are setting ourselves up for a crash.
• Companies who are raising equity or debt and holding the cash can build a stronger “fortress balance sheet” to make them more resilient.
• The question is whether and when the Federal Reserve can pull back their additional support to avoid inflation. However, in the short run the major risk is deflation, not inflation, and the Fed will do everything possible to avoid a deflationary scenario.

Lucrezia Reichlin

• Monetary and fiscal policies in response to COVID-19 have been very different to the GFC period. We are likely to see increased innovation in coordination between monetary and fiscal policy.
• One key question is whether Europe will be able to cope with individual country national debt by transferring risk between countries.
• We should not be complacent of the possibility of inflation, however central banks have several instruments to counteract the potential risk, assuming they act in a timely manner.
• A reduction of stimulus too early could result in a deflationary spiral.
• Central banks will eventually think about how broad their investment mandate should be including sustainable investing, but we are not there yet.

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Poll results

What do you think is the number one potential unintended long-term consequence from the policy responses to the crisis? (for example inflation, or inflated asset prices)