The COVID-19 recession is different from previous downturns because it originates in demand and supply disturbances which are highly specific to certain sectors (contact-intensive services). This sectoral nature renders aggregate demand policies, including monetary policy, much less effective. The PEPP was essential to prevent a financial crisis in the Spring of 2020; but there is no need to increase its size. In a sectoral recession, one should not expect much impact from central bank bond buying on inflation.
This document was provided by Policy Department A at the request of the Committee on Economic and Monetary Affairs (ECON).