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The COVID-19 Crisis and the Federal Reserve's Policy Response

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Abstract

The COVID-19 pandemic and the mitigation efforts put in place to contain it delivered the most severe blow to the U.S. economy since the Great Depression. In this paper, we argue that the Federal Reserve acted decisively and with dispatch to deploy all the tools in its conventional kit and to design, develop, and launch within weeks a series of innovative facilities to support the flow of credit to households and businesses. These measures, taken together, provided crucial support to the economy in 2020 and are continuing to contribute to what is expected to be a robust economic recovery in 2021.

Suggested Citation

  • Richard H. Clarida & Burcu Duygan-Bump & Chiara Scotti, 2021. "The COVID-19 Crisis and the Federal Reserve's Policy Response," Finance and Economics Discussion Series 2021-035, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2021-35
    DOI: 10.17016/FEDS.2021.035
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    References listed on IDEAS

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    1. Falk Bräuning & Teodora Paligorova, 2021. "Uptake of the Main Street Lending Program," FEDS Notes 2021-04-16-1, Board of Governors of the Federal Reserve System (U.S.).
    2. Campbell, Sean & Covitz, Daniel & Nelson, William & Pence, Karen, 2011. "Securitization markets and central banking: An evaluation of the term asset-backed securities loan facility," Journal of Monetary Economics, Elsevier, vol. 58(5), pages 518-531.
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    4. Bruce Mizrach & Christopher J. Neely, 2020. "Federal Reserve System International Facilities," Economic Synopses, Federal Reserve Bank of St. Louis, issue 29, May.
    5. Lael Brainard, 2021. "Some Preliminary Financial Stability Lessons from the COVID-19 Shock: a speech at the 2021 Annual Washington Conference, Institute of International Bankers (via webcast), March 1, 2021," Speech 90052, Board of Governors of the Federal Reserve System (U.S.).
    6. Eric R. Sims & Jing Cynthia Wu, 2020. "Wall Street vs. Main Street QE," NBER Working Papers 27295, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Scheicher, Martin, 2023. "Intermediation in US and EU bond and swap markets: stylised facts, trends and impact of the coronavirus (COVID-19) crisis in March 2020," ESRB Occasional Paper Series 24, European Systemic Risk Board.
    2. Bernardini, Marco & De Nicola, Annalisa, 2025. "The market stabilization role of central bank asset purchases: High-frequency evidence from the COVID-19 crisis," Journal of International Money and Finance, Elsevier, vol. 152(C).
    3. Orkideh Gharehgozli & Sunhyung Lee, 2022. "Money Supply and Inflation after COVID-19," Economies, MDPI, vol. 10(5), pages 1-14, April.
    4. Jordan Barone & Alain P. Chaboud & Adam Copeland & Cullen Kavoussi & Frank M. Keane & Seth Searls, 2023. "The Global Dash for Cash: Why Sovereign Bond Market Functioning Varied across Jurisdictions in March 2020," Economic Policy Review, Federal Reserve Bank of New York, vol. 29(3), pages 1-29, December.
    5. Michael J. Fleming & Haoyang Liu & Rich Podjasek & Jake Schurmeier, 2022. "The Federal Reserve’s Market Functioning Purchases," Economic Policy Review, Federal Reserve Bank of New York, vol. 28(1), pages 210-241, July.
    6. Malliaris, Anastasios G. & Malliaris, Mary E., 2023. "Where is the Euro Area headed? Restoration of price stability," Journal of Policy Modeling, Elsevier, vol. 45(4), pages 848-863.
    7. Klein, Aaron, 2022. "The Financialization of Recession Response," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 4(4), pages 47-76, April.
    8. Styliani Panetsidou & Angelos Synapis, 2025. "Equity financing during the Covid-19 economic downturn," Review of Quantitative Finance and Accounting, Springer, vol. 64(3), pages 1391-1430, April.
    9. Kreamer, Jonathan, 2022. "Financial intermediation and the supply of liquidity," Journal of Financial Stability, Elsevier, vol. 61(C).
    10. Gilchrist, Simon & Wei, Bin & Yue, Vivian Z. & Zakrajšek, Egon, 2024. "The Fed takes on corporate credit risk: An analysis of the efficacy of the SMCCF," Journal of Monetary Economics, Elsevier, vol. 146(C).

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    Keywords

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    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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