The U.S Fiscal and Monetary Response to the COVID-19 Crisis : An Assessment of the Stabilization Policies’ Impact on the Long Term Economic Recovery
Master thesis
Permanent lenke
https://hdl.handle.net/11250/2982557Utgivelsesdato
2021Metadata
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- Master Thesis [4209]
Sammendrag
In this thesis we assess the U.S fiscal and monetary response to the COVID-19 crisis, and
how these interventions have impacted the long term economic recovery. The broad range
of policies implemented to counter the crisis have been analyzed through the lens of an
extended AD/AS model.
Following the record amount of fiscal stimuli we document an overweight of demandtargeted
provisions, despite categorizing the pandemic as a real economy crisis triggered
by a supply shock. We find evidence that the U.S economy has recovered faster than
anticipated while the production is still operating below full capacity, a finding that raise
concerns around the broad targeted fiscal packages. Furthermore, we describe risks in
regards to the speed, scope and size of the monetary programs. We find evidence of
the Federal Reserve being more established in financial markets and to a larger extent
being engaged in the allocation of credit, resulting in an unprecedented growth in money
supply. The Fed’s interventions contributes to increased inflationary pressure, supporting
the our extended AD/AS model. Moreover, we employ the HP-filter to examine asset
inflation and overheating in the economy. We find clear indications of inflated asset
prices and a marginal positive output gap. The indications of asset inflation suggests
increased financial instability, further indicating that the government has provided elusive
stability. Furthermore, we find evidence of inflation in consumer goods running far above
the inflation target in the United States. This inflation is argued to be persistent, creating
a ripple effect that will harm businesses and households, who were the primary targets of
the stabilization policy.