We answer the question posed by the title by specifying and estimating a simple dynamic model of prices, wages, and short-run and long-run inflation expectations. The estimated model allows us to analyze the direct and indirect effects of product-market and labor-market shocks on prices and...

Central banks across the globe introduced large-scale asset purchase programs to address the unprecedented circumstances experienced during the pandemic. Many of these programs were announced as open-ended to shock-and-awe market participants and restore confidence in financial markets. This...

The COVID-19 pandemic presents a challenge for stabilization policy that is different from those resulting from either "supply" or "demand" shocks that similarly affect all sectors of the economy, owing to the degree to which the necessity of temporarily suspending some (but not all) economic...

We examine the effectiveness of forward guidance at the effective lower bound (ELB) in the context of the COVID-19 pandemic. Survey evidence underscores the myopia of professional forecasters at the initial stages of the pandemic and the extraordinary dispersion of their recent forecasts....

As countries around the world grapple with Covid-19, their economies are grinding to a halt. For the first time since the Great Depression both advanced economies and developing economies are in recession. Governments and central banks have responded to the pandemic and the economic crisis using...

Amid the COVID-19 outbreak and related expected economic downturn, many developed and emerging market central banks around the world engaged in new long-term asset purchase programs, or so-called quantitative easing (QE) interventions. This paper conducts an event-study analysis of 24 COVID-19...

We study liquidity conditions in the corporate bond market during the COVID-19 pandemic, and the effects of the unprecedented interventions by the Federal Reserve. We find that, at the height of the crisis, liquidity conditions deteriorated substantially, as dealers appeared unwilling to absorb...

Using a large-scale survey of U.S. households during the Covid-19 pandemic, we study how new information about fiscal and monetary policy responses to the crisis affects households' expectations. We provide random subsets of participants in the Nielsen Homescan panel with different combinations...

This case study compares the importance of prevailing market factors against that of COVID-19 dynamics and policy responses in explaining the evolution of Eurozone (EZ) sovereign spreads during the first half of 2020. Focusing on daily Eurozone CDS spreads, we adopt a multi-stage econometric...

We study disruptions in debt markets during the COVID-19 crisis. The safer end of the credit spectrum experienced significant losses that are hard to fully reconcile with standard default or risk premium channels. Corporate bonds traded at a large discount to their corresponding CDS, and this...