Isabel Schnabel: Lessons from an unusual crisis

Speech by Ms Isabel Schnabel, Member of the Executive Board of the European Central Bank (ECB), at the Federal Reserve Bank of New York conference on "Implications of Federal Reserve Actions in Response to the COVID-19 Pandemic", 1 October 2021.

The views expressed in this speech are those of the speaker and not the view of the BIS.

The economic developments caused by the coronavirus (COVID-19) pandemic have been highly unusual. After the deepest decline in output in the post-war period, the recovery was also much steeper than in other sharp recessions, such as the one after the global financial crisis.

The comparably swift brightening of the economic outlook is in large part due to the decisive policy responses by both fiscal and monetary authorities, which were in many respects as unusual as the crisis itself. Even though the pandemic is not yet over, I would like to use my remarks today as an opportunity to point out in what respect the policy response to the pandemic was indeed unusual, explain how it successfully averted an even more severe economic contraction in the euro area and ask what lessons we can draw for the future.

I will first describe the starting point of the euro area at the outset of the pandemic, which significantly affected the design of our policy response. Subsequently, I will explain how the ECB tailored its monetary policy response to this extraordinarily deep crisis by adapting its toolkit in an innovative way, and how monetary and fiscal policies complemented each other, unlike during previous crises. Finally, I will draw some tentative lessons from the crisis by highlighting three features that were crucial for the success of our response: first, our ability to design and implement forceful measures with the appropriate degree of flexibility based on the pre-existing blueprints of our extensive monetary policy toolkit; second, the complementarity and mutually reinforcing effects of our monetary policy instruments; and finally, the important role of fiscal policy in complementing monetary policy in counteracting the unprecedented economic fallout from the pandemic.