Abstract: Based on an analysis of data from 56 economies, we found that macro policy has a considerable impact on the extent of economic recovery after Covid reopening. Fiscal policy has a significant effect on economic recovery, and its benefit relative to cost depends on the trajectory of economic recovery. The effects of monetary policy and the channels through which it works are more subtle. A decline in real interest rate is more likely to boost economic recovery than a decline in nominal policy rate, and asset purchases seem to work mainly in coordination with fiscal policy.
In summary, first, macro policies, whether fiscal or monetary, are effective in bolstering economic recovery after shocks. Second, the coordination between fiscal and monetary policy may affect the transmission channel and effectiveness of policy. Third, whether a policy is worthy of being implemented depends on the trajectory of economic recovery, and strong policy support would be more effective if the economic recovery gap is more permanent.
