In the “Policy, policy, policy” section of our spotlight report, we discuss...
2020-10-05 1 ENGLISH REPORTS
More government funds for healthcare, from either a reallocation or an increase in government spending and credit lines, to raise the capacity of hospitals, produce more medical equipment, pay a bonus wage to medical workers, and search for the best drugs and a vaccine against the disease (Barroy et al., 2020). Reduction in interest rate by central banks (Box 1.3). Short-term interest rates went back to zero or close to zero in most advanced economies and there were substantial interest-rate cuts in many developing economies, which can make the effective lower bound of monetary policy a more global phenomenon after Covid-19 (Rogoff, 2020; Lilley and Rogoff, 2020). Quantitative easing, defined as an emergency increase in the balance sheets of central banks to avoid a collapse of asset prices in domestic currency. This effort has been stronger in advanced regions, such as the United States, Europe, the United Kingdom and Japan, but many developing economies also created special programmes or facilities to buy government and private bonds during the worst phase of the pandemic (Arslan et al., 2020).
Regulatory easing, defined as a reduction in the reserve and capital requirements of banks and financial institutions, so as not to increase the credit crunch in a period of higher default rates and capital losses in variable and fixed-income markets. There has also been a relaxation of the necessary provisions for non-performing loans, and many countries adopted debt standstills in domestic currency for firms and individuals most affected by the Covid-19 shock (Borio and Restoy, 2020). Tax easing, through deferrals or cancellation of payments, quick refunds and relaxation of audit and compliance rules, both for firms and individuals, to attenuate the loss of income and the emergency demand for credit. There has been an increase in taxes only in handful of countries, usually on high-income individuals and specific superfluous products, but the major trend to fight the pandemic has been to ease direct and indirect tax burdens temporarily, making the treasury function as a “bank” for liquidity-constrained agents (OECD, 2020b).
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