Incorporating Scenario Analysis into the Federal Reserve’s Policy Strategy & Communications
The report examines how the Federal Reserve can use scenario analysis to guide its policy strategy and communications amid the uncertainty of the COVID-19 pandemic.
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| Quick Facts | |
|---|---|
| Report location: | source |
| Language: | English |
| Publisher: | CATO Institute |
| Authors: | Andrew Levin, Mickey Levy, Michael Bordo |
| Geographic focus: | United States |
Methods
The research method involved analyzing the current economic situation, formulating illustrative scenarios, and drawing insights from historical economic episodes. The authors then assessed the implications of these scenarios for the Federal Reserve's policy strategy and communications.
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Key Insights
The report discusses the unprecedented uncertainty facing the U.S. economy due to COVID-19 and suggests that the Federal Reserve should use scenario analysis to inform its policy strategy and public communications. It presents three scenarios: a baseline with a partial recovery, a benign scenario with a rapid recovery due to a vaccine, and a severe adverse scenario with prolonged high unemployment and disinflationary pressures. The report draws insights from historical episodes like the Spanish flu and the Great Depression and outlines the challenges the Federal Reserve will face in adjusting its monetary policy and emergency credit facilities under each scenario.
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Additional Viewpoints
Categories: English publication language | United States geographic scope | covid-19 pandemic | disinflation | economic recovery | emergency credit facilities | federal reserve | historical episodes | monetary policy | policy challenges | scenario analysis | unemployment