Abstract

The pandemic exposes policymakers to fundamental uncertainties about future economic scenarios. While policymakers have to act forcefully to mitigate the impact on the economy, these conditions call for policy strategies that are also robust to uncertainty. This article compares two concepts of robust strategies: robust control and robust satisficing. It argues that a robust satisficing strategy is preferred and shows that the crisis responses of governments and central banks in Europe share features of robust satisficing in several dimensions.

Highlights

  • Robust Policy in Times of PandemicThe pandemic exposes policymakers to fundamental uncertainties about future economic scenarios

  • The pandemic is an unprecedented shock with a sizeable downward skew

  • Economic policy measures taken to address the economic fallout of the COVID-19 crisis can be assessed by their robustness to uncertainty

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Summary

Robust Policy in Times of Pandemic

The pandemic exposes policymakers to fundamental uncertainties about future economic scenarios. While policymakers have to act forcefully to mitigate the impact on the economy, these conditions call for policy strategies that are robust to uncertainty. This article compares two concepts of robust strategies: robust control and robust satisficing. It argues that a robust satisficing strategy is preferred and shows that the crisis responses of governments and central banks in Europe share features of robust satisficing in several dimensions

The pandemic creates fundamental uncertainty
Robust strategies
Proxies for robustness
Assessment of policy strategies
Robust control
Evaluation of the European policy response
Conclusion
Full Text
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