Thorsten Beck, Elena Carletti, Brunella Bruno, 17 March 2021

The combined effect of the measures implemented to maintain banks’ ability to provide funds during the Covid crisis was to create a virtuous circle between corporates, banks, and sovereigns, avoiding a funding crunch for either and keeping risk premiums at deflated levels. However, it also created the basis for possible increased systemic risk in the future. This column argues that the exit strategy from the various support measures must be carefully designed and coordinated, as well as communicated in a clear and timely manner.

Joshua Aizenman, Hiro Ito, 27 October 2020

The economic policies of the US in the post-COVID era will have important implications for the global economy. This column outlines two different exit strategies for the US from the COVID-related debt-overhang and analyses their implications for emerging markets and global stability. A strategy of continuing loose fiscal policies and accommodating monetary policies may spur short-term growth but would also increase the risks a deeper crisis in the future. Alternatively, the US could adopt a two-pronged approach of shifting fiscal priorities towards expenses with high social payoffs and then promoting fiscal adjustments aimed at a primary surplus and debt resilience. The post-WWII success story illustrates the feasibility of, and gains from, a two-pronged fiscal strategy.

Kris Mitchener, Joseph Mason, 15 June 2010

Many commentators have compared the global crisis to the Great Depression. This column explores lessons that can be applied to help shape expectations and guide exit policy for central banks. It argues that the need for credit stimulus should end when failed intermediaries are resolved and positive net present value credits are reallocated to solvent lenders.

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