Ricerc@Sapienza

The objective of the research is to study the effectiveness of the current monetary and fiscal policy mix to jump start Europe after the pandemic shock. The EU has reacted in an unprecedented way to the COVID shock through a combination of expansionary monetary and fiscal policies. This policy mix is new and different from that used in the aftermath of the financial crisis which was mainly relying on monetary policy. The ECB activated the Pandemic Emergency Purchasing Program (PEPP); the EU Council and the EU Commission suspended the Stability Pact, eased the possibility of state aids (see the various versions of the Temporary Framework), approved various initiatives at the euro-area level (e.g. SURE), and launched a new program, Next Generation EU (NGEU), to sustain investment and the recovery.
The objective of the research is to study the effectiveness of the current monetary and fiscal policy mix, its potential trade-offs and risks, focusing on distributional issues and political economy considerations that can affect its implementation.
The proposal can be divided into four themes that will be pursed in an organic and coordinated way: 1) Monetary policy stimulus: study the effectiveness of PEPP compared with alternative strategies, like helicopter money and enhanced forward guidance; analyze sovereign-debt risk due to the unwinding of PEPP; 2) Fiscal policy stimulus: provide a quantitative assessment of structural investments both from a micro and a macro perspective, by developing a new generation of models that integrate the macro dynamic approach with the fiscal microsimulation; 3) Reallocation effects of public investment across sectors: investigate reallocation effects and cross-sectional spillovers of new technologies adoption, skill-biased technological change and capital-skill complementarities. 4) Policy recommendation: identify a set of policy recommendations that should drive the post-COVID recovery.