Fiscal Stimulus Packages Research Articles

Effects of supply chain bottlenecks and fiscal stimulus on inflation dynamics in the COVID-19 pandemic era: a case of South Korea*

ABSTRACT We employ an augmented New Keynesian Phillips curve, integrating a global supply chain bottleneck index and comprehensive fiscal stimulus packages, to quantitatively examine the impact of these variables on inflation rates in South Korea using monthly time-series data from 2010 to 2023. The results reveal three key findings. First, the Global Supply Chain Pressure Index (GSCPI), serving as a proxy for global supply chain bottlenecks, has an overall statistically insignificant effect on inflation throughout the observation period. However, during the pandemic, its effect on inflation was statistically significant. Second, the detrended government stimulus packages, proxied by government transfers or government fixed investment, also demonstrated a significant escalating effect on inflation during the pandemic. These findings suggest that both cost-push and demand-pull factors contributed to recent inflation surges. Third, conventional determinants of inflation, such as expected inflation, the domestic output gap, and crude oil prices, consistently influence inflation, aligning with existing literature.

Commodity Price and Indonesian Fiscal Policy: An SVAR Analysis with Non-Gaussian Errors

Abstract This study exploits the non-Gaussianity for identification of a Bayesian SVAR model on newly unexplored monthly Indonesian data from 2007M1–2022M12, where we disentangle the commodity-related revenue from the total government revenues. Our main contribution is in labeling the statistically identified structural shocks as economic shocks by conducting a formal assessment of a set of proposed sign constraints. We simultaneously label a commodity price and three fiscal policy shocks, i.e. fiscal income tax, investment-spending, and consumption-spending shocks. Having evaluated their impacts, among the fiscal policy shocks, we find income tax shock the most impactful on output. Moreover, during the Covid crisis 2020–2021, the launched fiscal economic stimulus package (PEN program) positively contributed to the output. The recession of the Covid crisis could have deepened had the fiscal policymaker not responded at all. Albeit so, we should not overlook the contribution of the rising commodity prices to the output recovery. We also evaluate the commodity boom period in 2007–2009, the tax amnesty program in 2016–2017 and 2022, and the infrastructure spending boost in 2015. Our results suggest that output and retail sales would have been lower without the commodity price shock’s contribution during the commodity boom. Then, we find that tax amnesty and infrastructure spending boost policies contribute to higher retail sales.

A critical analysis of the European Union’s structure and approach to economic recovery during times of crisis

This essay critically analyses the European Union's (EU) approach to economic recovery during times of crisis, focusing on the 2008 financial crisis and the subsequent eurozone debt crisis. The EU's response included various measures such as bailouts, fiscal stimulus packages, and structural reforms. However, shortcomings in these responses are evident, including a lack of long-term planning and the exacerbation of negative effects by bailout announcements. Moreover, the essay examines structural issues within the EU, particularly regarding the European Central Bank's monetary policies and the lack of cohesive fiscal policies among member states. These structural deficiencies contributed to the severity of the crises. Despite lessons learned, including the need for stricter financial regulations and improved coordination among member states, challenges remain. The analysis suggests that while the EU has undergone reforms, its resilience to future crises remains uncertain.

INCREASING FISCAL AND ECONOMIC RESILIENCE POST PANDEMIC: EVIDENCE FROM SOUTH ASIAN COUNTRIES

The South Asia region faced extremely difficult economic challenges from the Coronavirus (COVID-19) pandemic. Almost two billion people living in South Asia were affected by the pandemic. The unprecedented shock in South Asia disturbed the pace and pattern of development and increased the vulnerabilities of the region. The region faced the problems of inequality, high inflation, rising fiscal deficit, disrupted growth, and environmental challenges further increasing the region’s vulnerabilities. Traditional macroeconomic policies are not enough to cope with this problem. In the face of these shocks, South Asian countries need to build robust fiscal and monetary policies and efficient use of remaining resources to build a more resilient economy for the protection of the population. Economic resilience might be effective to overcome such external shocks and support the recovery of all countries especially South Asian countries. Post-pandemic action in South Asian countries thus has become moreimportant, especially with restrained scope of fiscal and monetary stimulus. This examines the impact of COVID-19 on South Asian countries. The paper addresses the economic challenges faced by South Asian Countries in the pre- and post-pandemic period. It also briefly discusses the fiscal stimulus packages released by the South Asian countries to build stronger economies.

Decomposed oil price shocks and GCC stock market sector returns and volatility

This study investigates dynamic mean and tail-based connectedness between decomposed oil price shocks (demand shock, supply shock, and risk shock) and Gulf Cooperation Council (GCC) stock returns and volatility at the aggregate and sectoral levels of stock data. The sample period is January 13, 2012 - January 14, 2022, covering calm and turbulent periods. The results of mean-based connectedness show generally low levels of connectedness over the full sample period for both return and volatility, despite some time-variation and irregularity in the patterns of connectedness across stock sectors. Total, directional, and pairwise connectedness measures surge significantly during Phase 1 of COVID-19, highlighting the pandemic's influence on the oil shocks–GCC stocks nexus. However, Phase 2 of COVID-19 displays a gradual reduction in return and volatility connectedness, which could be attributed to fiscal stimulus and COVID19 relief packages adopted by policymakers to contain the adverse impact of the virus on the economy. Quantile-based connectedness measures reveal evidence of heterogeneity in the impacts of oil shocks across the various quantiles of stock sector returns and volatility. Unlike supply shock, demand shock is a net transmitter of spillovers, irrespective of the quantiles. Volatility connectedness is stronger at the high volatility state than the moderate and low volatility states for all sectors, but strongest for the industrials sector. The results indicate that modelling oil shocks and GCC stock sector returns and volatility should concentrate on the most influential oil shocks (e.g. demand shock) affecting the lower and upper quantiles of sector returns and upper quantiles of sector volatility, especially for the industrials. The findings have implications for improving portfolio risk management and regulatory procedures, which should be necessary to address spillover effects from decomposed oil shocks in the stock markets of oil-exporters such as GCC countries.

Efficacy of Fiscal Policy in Stimulating Economic Growth During Recession in China

Fiscal policy involves decisions related to government expenditures on public goods and services, as well as the collection of revenue through taxes and other sources. The government can use fiscal policies to adjust its spending and taxation levels to stimulate or restrain economic activity, influence consumer and business behavior, and achieve desired macroeconomic outcomes. A recession is characterized by a contraction in output, income, employment, and trade, usually accompanied by a general decline in business activity and a decline in consumer spending. During recessions, when economic activity declines, policymakers often turn to fiscal policy as a tool to boost aggregate demand, create jobs, and promote recovery. The study noted that China has experienced various economic downturns and has implemented fiscal policies to address them. Like during the global financial crisis in 2008-2009, China implemented a massive fiscal stimulus package to counter the economic downturn. Structural reforms, such as improving market competition, reducing administrative burdens, and enhancing the business environment, can amplify the impact of fiscal policy measures. Combining fiscal policy with structural reforms had a more significant effect on stimulating economic growth in China. In conclusion, timely and targeted fiscal interventions can have a positive impact on economic growth during recessions. Large-scale infrastructure projects, when implemented efficiently, have the potential to boost employment, drive domestic demand, and contribute to long-term economic development. The study recommended that policymakers should carefully identify and target sectors with high multiplier effects, such as infrastructure, innovation, and technology, to maximize the impact on economic growth. To maintain long-term fiscal sustainability, China should carefully manage public debt levels and ensure responsible fiscal practices. Continuous evaluation and monitoring of fiscal policy measures are essential to assess their effectiveness and make necessary adjustments. Keywords: Fiscal Policy, Economic Growth, Recession, China

Gauging the effects of the German COVID-19 fiscal stimulus package

We simulate the fiscal stimulus package set up by the German government to alleviate the costs of the COVID-19 pandemic in a dynamic New Keynesian multi-sector general equilibrium model. We find that, cumulated over 2020–2022, output losses relative to steady state can be reduced by more than 6 PP. On average, welfare costs of the pandemic can be mitigated by 11%, or even by 33% for liquidity-constrained households. The long-run present value multiplier of the package amounts to 0.5. Consumption tax cuts and transfers to households primarily stabilize private consumption, and subsidies prevent firm defaults. The most cost-effective measure is an increase in productivity-enhancing public investment. However, it only fully materializes in the medium to long-term. Relative to the respective pandemic impact, some sectors such as the energy and the manufacturing sector benefit above average from the fiscal package, while the effect for some services sectors turns out to be below average.

POST-PANDEMIC ECONOMIC RECOVERY IN THE U.S.: A REVIEW: DELVING INTO THE EFFICACY OF RECOVERY STRATEGIES AND POLICIES

This study presents a comprehensive review of the post-pandemic economic recovery in the United States, focusing on the efficacy of various recovery strategies and policy interventions. The research employs a systematic literature review methodology, drawing on recent academic literature, government reports, and publications from financial institutions. The inclusion criteria target studies published from 2020 onwards, with a specific focus on the U.S. economy and its recovery measures. The review identifies key themes, including the impact of government interventions, private sector adaptations, digital transformation, and the shift towards sustainability. Key findings indicate that the U.S. economic recovery has been multifaceted, with significant roles played by both government policies and private sector resilience. Fiscal stimulus packages and monetary policy adjustments have been crucial in stabilizing the economy, while businesses have innovated and digitized operations to adapt to new economic realities. The pandemic has also accelerated trends towards a digital and green economy, presenting both challenges and opportunities for future growth. The study highlights the need for continued support through fiscal and monetary policies, investment in digital infrastructure, and a focus on sustainable development to ensure robust and inclusive economic growth. It also emphasizes the importance of addressing inequalities and fostering public-private partnerships. The review concludes with recommendations for policymakers and economic leaders, emphasizing the need for flexible and adaptive policy responses. Future research directions include exploring the long-term impacts of the pandemic, the effectiveness of specific recovery policies, and the interplay between economic recovery and social issues. This study provides valuable insights into the dynamics of economic recovery post-pandemic and offers guidance for managing future economic challenges.

POST-PANDEMIC ECONOMIC RECOVERY IN THE U.S.: A REVIEW: DELVING INTO THE EFFICACY OF RECOVERY STRATEGIES AND POLICIES

This study presents a comprehensive review of the post-pandemic economic recovery in the United States, focusing on the efficacy of various recovery strategies and policy interventions. The research employs a systematic literature review methodology, drawing on recent academic literature, government reports, and publications from financial institutions. The inclusion criteria target studies published from 2020 onwards, with a specific focus on the U.S. economy and its recovery measures. The review identifies key themes, including the impact of government interventions, private sector adaptations, digital transformation, and the shift towards sustainability. Key findings indicate that the U.S. economic recovery has been multifaceted, with significant roles played by both government policies and private sector resilience. Fiscal stimulus packages and monetary policy adjustments have been crucial in stabilizing the economy, while businesses have innovated and digitized operations to adapt to new economic realities. The pandemic has also accelerated trends towards a digital and green economy, presenting both challenges and opportunities for future growth. The study highlights the need for continued support through fiscal and monetary policies, investment in digital infrastructure, and a focus on sustainable development to ensure robust and inclusive economic growth. It also emphasizes the importance of addressing inequalities and fostering public-private partnerships. The review concludes with recommendations for policymakers and economic leaders, emphasizing the need for flexible and adaptive policy responses. Future research directions include exploring the long-term impacts of the pandemic, the effectiveness of specific recovery policies, and the interplay between economic recovery and social issues. This study provides valuable insights into the dynamics of economic recovery post-pandemic and offers guidance for managing future economic challenges.

Persistency of military spending and fiscal policy responses to Covid-19

ABSTRACT Using a relatively large time-varying cross-country panel dataset of fiscal policy responses to the Covid-19 pandemic, this paper examines the relationship between military spending persistency and the size of the fiscal stimulus packages. The results suggest that countries with more persistent military spending have had smaller fiscal-stimulus packages during the Covid-19 pandemic.

Post-2008 Fiscal Stimulus Packages and the Driving Forces for China’s Urbanization

A growing body of research has sought to determine how different factors have affected urbanization in developed countries over the past decades. Yet, few studies have systematically examined urbanization’s driving forces, particularly in emerging economies. In 2008–2009, the Chinese government announced an economic stimulus program to revitalize an economy struck by the 2007–2008 Global Financial Crisis. This study aims to identify how urbanization’s driving forces evolved under a drastic change in fiscal policy and revisit the conventional urbanization theories in the Chinese context. Using a dataset covering 31 Chinese provinces and spanning the periods 2005–2011 and 2013–2015, we employ panel data regressions to analyze whether such a fiscal arrangement affected urbanization in China. Throughout the entire period, the fiscal stimulus program caused a change in the drivers for urbanization at the national and regional levels. Before the implementation of the program, industrialization drove urbanization. After the program’s implementation, land financialization was crucial in promoting urbanization across the country. Our findings challenge the conventional urbanization theory—industrialization is always the primary driving force of urbanization in emerging economies. Land financialization, a kind of tertiary production, can also drive urbanization significantly.

Factors Determing the COVID-19 Fiscal Stimulus Packages. the Case of the Advanced and Emerging Economies

Abstract The article discusses the determinants of fiscal policy in the times of COVID-19. Most economists share the opinion that fiscal packages are necessary to mitigate the health and economic costs of a pandemic. However, the scale of fiscal intervention and the types of fiscal policy instruments that should be used raise doubts. The aim of the article is to explore the factors determining the size and structure of fiscal packages which have been implemented globally in response to the crisis caused by the COVID-19 pandemic. In addition, attention is drawn to the potential impact of fiscal intervention on public finance sustainability, bearing in mind that most governments have chosen to use fiscal support instruments to enhance consumption and investment following the COVID-19 hit, although the cross-country differences are evident both in the magnitude and composition of fiscal stimulus packages. A descriptive analysis was conducted along with a panel data analysis to examine the determinants of government fiscal support in response to the COVID-19 crisis. The empirical analysis is based on cross-sectional data from the International Monetary Fund, OECD and Eurostat. The sample consists of 40 countries representing advanced and emerging economies. Based on the panel analysis, it was found that the total fiscal stimulus packages depended mainly on the fiscal space. Fiscal intervention in countries with greater tax-collection capacity (such as Germany, United States, United Kingdom and Japan) was greater compared to others. A positive and statistically significant relationship between the average income level and the size of fiscal stimulus was also confirmed. Moreover, it turned out that countries with larger populations and higher fatality rates provided greater fiscal support for the COVID-19 pandemic.The empirical analysis expands the existing knowledge on the determinants of the fiscal policy implemented in response to the COVID-19 crisis under the conditions of low interest rates, when macroeconomic stabilization can only be ensured through fiscal stimulus programs.

India’s Policy Bailouts from the COVID-19 Economic Crisis: Evolution of Monetary and Fiscal Policies Since the Pandemic

India and the world went through a public health and humanitarian crisis due to the outbreak of the COVID-19 pandemic in 2020. This article aims to understand the various instruments deployed for tackling the economic side of the crisis and their impacts. It discusses the monetary policy measures that could have been appropriate to tackle the pandemic and the policies deployed by the Reserve Bank of India (RBI) in conjunction with the fiscal stimulus by the government. Subsequently, it discusses fiscal stimulus packages, the need to direct them from the suppliers’ end, and other subsistence policy measures such as food crop transfers and adjustments in federal fund allocations. Policy recommendations discuss the role and importance of stakeholder engagement and investment in the healthcare sector for capacity enhancement and job creation as a short-term relief plan and for a post-pandemic sustainable exit for appropriately handling the pandemics that may follow in the future, respectively. The conclusion advocates the adoption of a policy mix. Then it discusses further challenges, such as the non-availability of literature on the impact of non-traditional policy solutions and the establishment of mechanisms to quickly test policies’ operational feasibility. It culminates with the emphasis on the paradigm shift in the joint approach of the government and the RBI to put the economy back on the trajectory of high growth, which was severely impacted by the sudden and unanticipated pandemic shock, and the way ahead toward becoming a global economic superpower.

How do gold and oil react to the COVID-19 pandemic: A review

This paper reviews COVID-19 pandemic-related literature to examine its impacts on oil and gold prices during and since the initial outbreak. The literature reviewed covers varying markets, hypotheses, methodologies, robustness checks, and findings. Crude oil is important to everyday life for individuals, businesses, investors, and markets globally. The forces exerted by demand and supply and shocks can greatly increase volatility in oil commodity prices, which has been the case during the COVID-19 pandemic outbreak. Oil has also in the past been used as a risk diversifier in portfolio optimization strategies. Gold has long been seen as a safe-haven asset that investors flee to during economic and financial market uncertainty and turbulence. How did the COVID-19 health crisis affect these two commodities during its initial outbreak and consequent persistence since then? How did government lockdown and restriction measures, monetary and fiscal stimulus packages, and pandemic-related news impact these commodity markets and their movements? Is there a contagion volatility effect between different markets and if so, who have been net transmitters and recipients of these flow-on effects? This literature review offers some insight into the answers to these questions while also highlighting the importance of further study since COVID-19 and its strains are not finished with the world yet.

International currency markets and the COVID‐19 pandemic

AbstractWe find that quantifying COVID‐19 pandemic shocks is critical to understanding international currency market returns. Scaled by population, shocks from between‐country differences in the number of weekly COVID‐19 deaths are informative in predicting exchange rate returns. Following Alfaro et al. (2020), we estimate the expected number of COVID‐19 deaths based on an exponential model and use it to construct two pandemic shocks that measure the unanticipated number of deaths on a weekly basis and the time‐varying correction of forecast provided new information from the previous week. We document negative impacts of COVID‐19 propagation on currency returns. In addition, we find that the government response, in particular fiscal and monetary stimulus packages, can help mitigate negative effects of COVID‐19 on currency returns. Our findings are robust to country‐specific pandemic measures, window sizes of the exponential model, and the choice of forecast model.

What do fiscal stimulus packages mean for household debt?

AbstractWe study the links between fiscal stimulus packages during times of crisis and households' liabilities. We do so by using household‐level data on income and liabilities from the Consumer Expenditure Survey, and estimating an empirical model along those in the literature on the consumption effects of these packages. We find that receiving a check from the government tends to translate into a reduction in outstanding liabilities for American households. This effect is robust to controlling for income levels and household size. The effects are driven by households whose income is below the median and by those who remain employed during the crisis.

Inequality, Informality, Marginality and Unemployment (IIMU) in Indian Labor Market during Covid-19 Pandemic

This paper examines inequality, informality, marginality and unemployment in Indian labor market during Covid-19 Pandemic. These four concepts are dynamically examined in the context of wage code, 2019 and the recent three labor codes, 2020 passed in parliament by the central government to expand the neo-liberal global capitalism agenda to increase surplus rate via higher exploitation rate of workers. The paper also critically analyses the economic package announced by the government with insignificant share of fiscal policy measures rather monetary policy measures including loan and credit. Alternatively, this paper advocates a fiscal stimulus package to counter the challenges of lives and livelihood of the workers especially informal workers in the Indian labor market.

Fiscal sustainability in Africa: Accelerating the post-COVID-19 recovery through improved public finances.

The article examines the impact of the COVID‐19 pandemic on economies in Africa through the application of a novel Debt, Investment and Growth model with a segmented Labor market (DIG‐Labor). The pandemic is modeled via supply shock that disrupts economic activities in countries in Africa, followed by effects on household consumption behavior and welfare, and business investment decisions. The DIG‐Labor model is calibrated to account for informality, which is a key characteristic of economies in Africa. We find that, in the absence of appropriate remedial measures, the COVID‐19 pandemic reduces employment in the formal and informal sectors and scales back consumption for savers and non‐savers, with the reduction in consumption being more pronounced for savers. These contractions lead to an economic recession in Africa and widen the fiscal and current account deficits, among others. The effects of fiscal stimulus packages in response to the COVID‐19 pandemic and various financing mechanisms are also examined. A key finding is that various policy responses to the emerging COVID‐19 induced macroeconomic imbalances have diverse implications, which should be carefully examined to mitigate the negative consequences while maximizing the opportunities for a swift, stronger and more inclusive economic recovery.

Winds of tapering, financial gravity and COVID-19

Real interest rates have fallen dramatically since the early 1980s. Economic theory states that lower real rates discourage savings while promoting spending. However, today, in the world economy, we face a global saving glut problem in which, even in negative real rates, economic agents keep saving. This situation leads to excess demand for safe assets (US Treasuries), lower bond yields, and higher equity valuations. Thus, the world economy has become more dependent on major economies, especially the United States. In this research, we aim to measure the dependency of the world economy on United States monetary policy. We called this new methodology “financial gravity” and tried to quantify the nature by using panel data analysis. We define monetary dependency (financial gravity) by US Investment flows and their reaction against International Reserves, Credit Default Spreads (CDS), and Foreign Exchange Rates. Our empirical findings support that financial gravity is positively related to international reserves and negatively related to Credit Default Swap Spreads (CDS) and Foreign Exchange rates. We also analyzed the COVID-19 period and found that pandemics positively contributed to world reserve accumulation due to economic lock-down measures, fiscal stimulus packages (unemployment benefits), and decreased global spending.

Large-Scale and Green? The German Covid-19 Stimulus Package in International Comparison

ABSTRACT The Covid-19 pandemic is a major global crisis the impact of which is likely to exceed the upheavals caused by the last financial and economic crisis of 2008/2009. Germany as an export-oriented economy faces tremendous economic threats in the aftermath of the pandemic such as the collapse of global supply chains, the lockdown of economic sectors and impending job losses. As a reaction, the German government adopted, much as in the previous financial crisis, fiscal stimulus packages as part of a Keynesian-style public spending programme to stabilise its economy. Yet, in addition, the German government explicitly conceptualised its reactions as part of a ‘Package for the Future’ (Zukunftspaket), interlinking it with the second big global challenge: climate change and environmental degradation. We evaluate the German stimulus package on both these goals by comparing it with stimulus packages passed in other G20 countries. Based on a Qualitative Comparative Analysis (QCA) added by a case study of Germany, we identify the driving determinants behind the fiscal policy reactions with regard to the size of the stimulus package as well as its contribution to adopt long-term environmental transformations.