Support Policies and Inflationary Pressures: A Critical Review of 2020-2022 in the Light of the 2008 Experience

GEORGAKAS, IOANNIS (2025): Support Policies and Inflationary Pressures: A Critical Review of 2020-2022 in the Light of the 2008 Experience.

Abstract

We examine the relationship between expansionary monetary and fiscal policy and inflation in two different periods: the 2008 global financial crisis and the COVID-19 pandemic period from 2020 to 2022. In the first case, we analyze the response of central banks through interest rate cuts and quantitative easing in an environment of negative inflation and low demand. In the second, the much more intense monetary and fiscal intervention is examined, accompanied by direct transfers to households and firms, leading to widespread inflationary pressures from 2021 onwards. We attempt to compare the features and effects of the two policies, highlighting the effects of excessive liquidity, deficit financing, and delayed tightening. We conclude that treating inflation as a "transitory phenomenon" was a critical miscalculation. The need for macroeconomic stability, timely interest rate adjustment, and restoration of monetary credibility is stressed

• Item Type: MPRA Paper
• Language: English
• Keywords: monetary policy, inflation, Federal Reserve, European Central Bank, interest rates, quantitative easing, 2008 crisis, COVID-19 pandemic, monetary policy, inflation
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy

References

Laurence Ball, D. Leigh and Prachi Mishra. "Understanding US Inflation during the COVID-19 Era." Brookings Papers on Economic Activity, 2022 (2022): 1 - 80. https://doi.org/10.1353/eca.2022.a901276.

Laurence Ball, D. Leigh and Prachi Mishra. "Understanding U.S. Inflation During the COVID Era." IMF Working Papers (2022). https://doi.org/10.3386/w30613.

Britta Klagge, M. Fromhold-Eisebith and Martina Fuchs. "The Return of Depression Economics and the Crisis of 2008." Regional Studies, 44 (2008): 383 - 385. https://doi.org/10.1080/00343401003707367.

Mai Chi Dao, Pierre-Olivier Gourinchas, Daniel Leigh and Prachi Mishra. "Understanding the international rise and fall of inflation since 2020." Journal of Monetary Economics (2024). https://doi.org/10.1016/j.jmoneco.2024.103658.

Rifki Khoirudin and M. Kurniawan. "A time-varying of property residential price in Indonesia: a VAR approach." Jurnal Ekonomi & Studi Pembangunan (2023). https://doi.org/10.18196/jesp.v24i1.17750.

L. Ball and Sandeep Mazumder. "Inflation Dynamics and the Great Recession." Brookings Papers on Economic Activity, 2011 (2011): 337 - 381. https://doi.org/10.2139/ssrn.1833648.

Bingduo Yang, Wei Long and Zihui Yang. "Testing predictability of stock returns under possible bubbles." Journal of Empirical Finance (2022). https://doi.org/10.1016/j.jempfin.2022.07.010.

A. Mollick and T. Assefa. "U.S. stock returns and oil prices: The tale from daily data and the 2008–2009 financial crisis." Energy Economics, 36 (2013): 1-18. https://doi.org/10.1016/J.ENECO.2012.11.021.

Milojko Arsic, Zorica Mladenović and Aleksandra Nojković. "Macroeconomic performance of inflation targeting in European and Asian emerging economies." Journal of Policy Modeling (2022). https://doi.org/10.1016/j.jpolmod.2022.06.002.

Dariusz Prokopowicz. "THE POSTCOVID RISE IN INFLATION: COINCIDENCE OR THE RESULT OF MISGUIDED, EXCESSIVELY INTERVENTIONIST AND MONETARIST ECONOMIC POLICIES." International Journal of New Economics and Social Sciences (2022). https://doi.org/10.5604/01.3001.0016.3409.

Borivoje D. Krušković. "Central Bank Intervention in the Inflation Targeting." Journal of Central Banking Theory and Practice, 11 (2022): 67 - 85. https://doi.org/10.2478/jcbtp-2022-0003.

Mathias Klein and L. Linnemann. "The composition of public spending and the inflationary effects of fiscal policy shocks." European Economic Review (2023). https://doi.org/10.1016/j.euroecorev.2023.104460.

G. Dwyer. "INFLATION AND GOVERNMENT DEFICITS." Economic Inquiry, 20 (1982): 315-329. https://doi.org/10.1111/J.1465-7295.1982.TB00350.X.

L. Mises. "Interventionism: An Economic Analysis." (1998).

Nawazish Mirza, Bushra Naqvi, S. Rizvi and Muhammad Umar. "Fiscal or monetary? Efficacy of regulatory regimes and energy trilemma of the inflation reduction act (IRA)." International Review of Financial Analysis (2023). https://doi.org/10.1016/j.irfa.2023.102821.

K. Blackburn and M. Christensen. "Monetary Policy and Policy Credibility: Theories and Evidence." Journal of Economic Literature, 27 (1989): 1-45.

Bernanke, Ben S. Monetary Policy since the Onset of the Crisis. Federal Reserve Speech, August 31, 2012. https://www.federalreserve.gov/newsevents/speech/bernanke20120831a.htm.

Bernanke, Ben S. 21st Century Monetary Policy: The Federal Reserve from the Great Inflation to COVID-19. New York: W. W. Norton & Company, 2022.

Friedman, Milton. "The Role of Monetary Policy." American Economic Review 58, no. 1 (1968): 1–17. https://www.aeaweb.org/aer/top20/58.1.1-17.pdf.

Friedman, Milton. The Counter-Revolution in Monetary Theory. London: Institute of Economic Affairs, 1970.

Hazlitt, Henry. Economics in One Lesson. New York: Harper & Brothers Publishers, 1946.

Lucas, Robert E. "Expectations and the Neutrality of Money." Journal of Economic Theory 4, no. 2 (1972): 103–124. https://doi.org/10.1016/0022-0531(72)90142-1.

World Bank. Global Economic Prospects 2022. Washington, DC: World Bank, 2022. https://www.worldbank.org/en/publication/global-economic-prospects.