The Social Insurance Perspective on Fiscal Policy: Implications for Monetary Policy

This paper begins by reviewing the social insurance perspective on pandemic fiscal policy advocated by Romer and Romer (2022). It goes on to expand on Romer and Romer's discussion of insights from the social insurance perspective into how fiscal policy should respond to other recessions. It then turns to the implications for monetary policy. It shows that in the case of social insurance, the natural baseline is not coordination with fiscal policy, but a hierarchy of decisions: social insurance actions should be chosen first, followed by choices about conventional monetary policy, potentially followed by some combination of unconventional monetary policy and general fiscal stimulus. There are good reasons for monetary policy to not directly support the social insurance role of fiscal policy, but there is room for some exceptions.