Department of Economics and Business Economics

The Cost of Coronavirus Uncertainty: The High Returns to Clear Policy Plans

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaperJournal articleResearchpeer-review

DOI

  • Giovanni Pellegrino
  • Federico Ravenna, Danmarks Nationalbank, University of Copenhagen, HEC Montreal, Centre for Economic Policy Research, London
  • ,
  • Gabriel Züllig, HEC Montreal, University of Copenhagen

Policymakers face an extremely uncertain environment during COVID-19. Using a nonlinear VAR estimate for the Euro Area, we argue that the benefit of reducing policy uncertainty at a time dominated by pessimistic expectations amounts to several points of GDP. The impact on the economy of uncertainty shocks is much larger during periods of negative outlook for the future. We estimate the impact on industrial production of the current COVID-19 induced uncertainty to peak at a year-over-year growth loss of −15.4 per cent in September 2020, and to lead to a fall in CPI inflation between 1 per cent and 1.5 per cent. Policies providing state-contingent scenarios ready to be adopted if the worst-case outcomes materialise can reduce the impact of uncertainty.

Original languageEnglish
JournalAustralian Economic Review
Volume53
Issue3
Pages (from-to)397-401
Number of pages5
ISSN0004-9018
DOIs
Publication statusPublished - Sep 2020

See relations at Aarhus University Citationformats

ID: 197170006