With vaccines around the corner, there is increased hope that the pandemic could soon be under better control. That said, the need for cooperative efforts to work toward a better future has never been greater. Priority areas relate to the need to produce and distribute vaccines globally, tackle climate change, and bolster the economic recovery from the crisis.
An IMF report published ahead of the G20 leaders meeting argues that a synchronized infrastructure investment push could invigorate growth, limit scarring, and address climate goals. In fact, when many countries act at the same time, public infrastructure investment could help lift growth domestically and abroad through trade linkages. This positive “spillover” effect could provide an additional boost to global output.
The spillovers created by higher demand are particularly impactful when economic conditions are weak and interest rates low. When economic conditions are strong, higher government spending may push inflation above the central bank’s target and trigger a monetary policy tightening, offsetting some of the initial boost to demand. But when conditions are weak and inflation is well below target, monetary policy is less likely to tighten in response to higher government […]