The fiscal and monetary response to the coronavirus crisis has been huge, unprecedented and perhaps unavoidable. Governments have pumped billions into the economy and central banks are keeping monetary policy extremely loose, so some of the worst economic effects of the lockdown may have been averted.
The level of stimulus has reached historic levels. Deutsche Bank notes that the US central bank, the Federal Reserve’s, balance sheet grew from $4.3bn (£3.43bn) to $6.4bn in less than two months of 2020, exceeding the expansion witnessed in the four years following the 2008 financial crisis. The bank has described recent fiscal policy as “just as aggressive”, with one calculation suggesting that front-loaded US stimulus amounted to 9.1 per cent of gross domestic product (GDP) – more than double the amount deployed in 2008.
