# **1. Introduction**

The coronavirus (COVID-19) outbreak has imposed a heavy toll on economic activity worldwide. The shock has been sudden and concurrent across countries, and it has been characterized by significant uncertainty regarding its magnitude and duration. Because of the rapid transmission of the virus, people around the globe have simultaneously isolated following strict public health orders. Social distancing and other containment measures are emergency measures that save lives, but they have led to a synchronized collapse in economic activity worldwide. Major stock market indexes crashed at an unprecedented pace (Baker et al., 2020), erasing close to one third of their value in just a matter of weeks and hitting industries across the board, reflecting expected losses in the corporate sector. However, the rebound from this initial collapse has also been relatively swift in the wake of a strong policy response (Figure 1). For example, in the United States, stock prices for most industries recovered about two thirds of their value lost within six months of the initial collapse (Table 1).

Policy makers around the world have rapidly deployed a wide arsenal of tools to cope with the inevitable economic recession and cushion the effects of the shock.<sup>1</sup> Many of these policies have focused on helping firms manage the crisis (Ilzetzki, 2020). In Europe, Germany’s bazooka program included e550 billion in new loans to firms through its state investment bank (Garicano, 2020), while in the U.K. and Switzerland the policies introduced enabled firms to obtain bridging loans (Eckert et al., 2020; Goodhart et al., 2020). At the union level, the European Central Bank launched early in March a program of private and public securities purchases, in addition to easing collateral eligibility rules and providing financial assistance to firms (Delatte and Guillaume, 2020). Moreover, the European Council approved in July a recovery plan which included both debt issuance and large-scale transfers (Blesse et al., 2020). Similarly, in the United States the Federal Reserve extended liquidity to firms through the purchase of financial securities in capital markets (De Vito and Gomez, 2020a). In emerging markets and developing countries, counter-cyclical monetary policy has been extensively used, with governments slashing policy rates and intervening in foreign exchange markets while trying to provide liquidity to firms (Gelos et al., 2020; Hofmann et al., 2020). For example, in Mexico, the Central Bank announced the purchase of corporate bonds in April (Hartley and Rebucci, 2020), while in Pakistan and Egypt the drop in the monetary policy rate was the largest in a sample of 85 nations which included both developed and developing countries (Benmelech and Tzur-Ilan, 2020).

Economists have come up with additional policy proposals. Governments could be the backstop for absorbing losses (Beck, 2020), act as a payer of last resort (Saez and Zucman, 2020), adopt measures of social insurance as a way to mitigate the short-run negative effects of the pandemic (Chetty et al., 2020), or support bridging the gap between pre- and post-pandemic economies (Hassler et al., 2020). Others have suggested shield packages aimed at supporting firms, especially those in financial distress (B ́enassy-Qu ́er ́e et al., 2020). Additional proposals include the provision of support to wage payments (Alstadsæter et al., 2020), the need for “helicopter money” (Cukierman, 2020), restricting financial institution’s voluntary pay-outs (Beck et al., 2020), equity-like cash flow injec-

> 1The continuously growing policy trackers compiled by the IMF, the World Bank, and Yale’s Program on Financial Stability, and discussed in places like Econfip, Elgin et al. (2020), and VoxEU provide just a glimpse of the many initiatives that have been implemented.

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