Report
Coronavirus: An example of an exogenous negative growth shock
Despite the unemployment rate having become very low , OECD countries have kept in place expansionary monetary and fiscal policies. This choice may be explained by: The desire to extend the growth period, by taking advantage of the rise in the participation rate; The persistence with higher inflation targets than the trend in inflation even at full employment. But it is well known that this strategy becomes very dangerous in the event of an unexpected negative growth shock. This is because there is very little room for an economic policy response, as interest rates are already very low and the fiscal deficit is already high. We are now seeing that such fears were justified : the coronavirus crisis is going to reduce global growth sharply, and there will be very little room to respond to this fall in growth.
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Natixis
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Patrick Artus
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