The fiscal and monetary response to COVID‐19: What the Great Depression has – and hasn't – taught us

Abstract Although some regard the New Deal of 1930s as exemplifying an aggressive fiscal and monetary response to a severe economic crisis, US policy responses COVID‐19 crisis have actually been far more substantial – and, so far, much effective in reviving aggregate spending. many fear that these responses, large‐scale increase bank reserves especially, must eventually cause unwanted inflation, concurrent sharp decline money's velocity has thus than offset any inflationary effects money growth, while forward bond prices reflect general belief inflation will remain below 2 per cent for at least another decade. Notwithstanding growth Fed's balance sheet, Fed authorities can always check by sufficiently raising interest return on reserves. Nonetheless, recent developments heightened risk ‘fiscal dominance’ point future.