Monetary and Fiscal Policy during the COVID-19 Pandemic

David Andolfatto () and Fernando Martin

No 2025-004, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We study U.S. monetary and fiscal policy during the COVID-19 pandemic using a small-scale dynamic general equilibrium model calibrated to 2020–2024. The model is used to evaluate observed and counterfactual policies, emphasizing their distributional consequences. Without fiscal support, the pandemic would have imposed large welfare losses on adversely affected households and substantially increased welfare inequality. Fiscal transfers provided valuable social insurance, but exceeded the amount necessary to relax borrowing constraints. Optimal monetary policy calls for earlier tightening but cannot avoid the fiscal-induced increase in the price level. Strict inflation targeting reduces inflation only by imposing large welfare costs on unconstrained households.

Keywords: monetary policy; fiscal policy; inflation; price level; COVID-19 (search for similar items in EconPapers)
JEL-codes: E40 E52 E60 E63 E65 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2025-02-14, Revised 2026-09-17
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge and nep-mon
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Citations: View citations in EconPapers (1)

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DOI: 10.20955/wp.2025.004

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