RT Journal Article
T1 Macroeconomic policies and the pandemic-driven recession
T2 Políticas macroeconómicas y la recesión debida a la pandemia
A1 Costa Junior, Celso José
A1 García-Cintado, Alejandro
A1 Marques Junior, Karlo
K1 Pandemic
K1 Taxation
K1 Public spending
K1 Monetary policy
K1 DSGE model
K1 Zero lower bound
K1 Quantitative easing
AB We build a three-country DSGE model to address the economic fallout from the COVID-19 shock. First, three different scenarios –optimistic, baseline and pessimistic– are drawn where economic authorities are assumed to not react to the disturbance. We find that the pandemic brings about a prolonged economic depression in the latter scenario –the most realistic one–, as GDP and hours worked fall by 20% (from trend) and they never recover their pre-crisis levels over the span of time studied. We then move on to analyze the effectiveness of conventional fiscal and monetary policy tools in curbing the recessionary consequences of the pandemic. The most powerful instruments are government purchases and expansionary monetary policy, although these two measures come with some trade-offs. In addition, we explore how a binding zero lower bound (ZLB) that renders conventional monetary policy ineffective can affect our findings. We show that the lower constraint deepens the recession caused by the pandemic, primarily because the central bank cannot lower the policy rate further, and because fiscal policy tightens in order to ensure government debt sustainability. Naturally, we next ask ourselves what would happen in this context did the monetary authority rely on unconventional monetary policy to try to dampen the recessionary consequences of the pandemic. Our results reveal that quantitative easing (QE) prevents private consumption, inflation, and to a much lesser extent, output from falling as much due to the shock.
PB ELSEVIER
YR 2021
FD 2021-04-01
LK https://hdl.handle.net/10433/19885
UL https://hdl.handle.net/10433/19885
LA en
NO International Review of Economics and Finance 72 (2021) 438–465
NO Financial support by the Spanish Ministry of Science, Innovation and Universities through grant ECO2017-86780-R (AEI/FEDER, UE) is gratefully acknowledged.
NO Proyectos de investigaciónFECYT -- PROPUESTAS DE MEJORA PARA LA ECONOMIA ESPAÑOLA: DESEMPLEO, EMPA...
NO Universidad Pablo de Olavide. Departamento de Economía, Métodos Cuantitativos e Historia Económica
NO Universidade Estadual de Ponta Grossa (Brasil). Departamento de Economia
DS RIO
RD May 9, 2026