Economic Activity, Fiscal Space and Types of COVID-19 Containment Measures

Economic Activity, Fiscal Space and Types of COVID-19 Containment Measures
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Volume/Issue: Volume 2022 Issue 012
Publication date: January 2022
ISBN: 9781616357214
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Topics covered in this book

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Economics- Macroeconomics , Money and Monetary Policy , Public Finance , Economics / General , COVID-19 , fiscal measures , containment measures , fiscal space , sovereign risk , , containment measure , IMF working papers , public health response time , types of COVID-19 containment , CDS spread , infection case , Fiscal space , Credit default swap , COVID-19 , Western Hemisphere , Global , Europe

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Summary

This paper argues that the type of COVID-19 containment measures affects the trade-offs between infection cases, economic activity and sovereign risk. Using local projection methods and a year and a half of high-frequency daily data covering 44 advanced and emerging economies, we find that smart (e.g. testing) as opposed to physical (e.g. lockdown) measures appear to be best placed to tackle these trade-offs. Initial conditions also matter whereby containment measures can be less disruptive when public health response time is fast and public debt is low. We also construct a database of daily fiscal announcements for Euro area countries, and find that sovereign risk is improved under a combination of large support packages and smart measures.

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