{"id":10320,"date":"2021-02-26T10:03:23","date_gmt":"2021-02-26T10:03:23","guid":{"rendered":"http:\/\/www.economicsobservatory.com\/?post_type=question&p=10320"},"modified":"2021-04-14T14:58:12","modified_gmt":"2021-04-14T13:58:12","slug":"perspective-matters","status":"publish","type":"question","link":"https:\/\/www.economicsobservatory.com\/test\/perspective-matters","title":{"rendered":"Perspective matters"},"content":{"rendered":"\n

Newsletter from 26 February 2021<\/strong><\/p>\n\n\n\n

To solve any difficult problem, there is value in looking at things from a range of perspectives. Using different measures and methodologies can help us to draw nuanced conclusions, and a balanced approach is critical for designing good policy.<\/p>\n\n\n\n

With Covid-19, it\u2019s no different. Arguably, this is all the more important because the challenges posed by the pandemic have called for such extreme measures. Protecting the population has meant nation-wide lockdowns. The Coronavirus Job Retention Scheme has kept millions of furloughed workers from losing their jobs. And medical innovation has been supercharged in pursuit of new vaccine technology.<\/p>\n\n\n\n

It is certainly striking that the global economy has been hurt by a collection of viral particles that could fit into a single Coca-Cola can \u2013 a fact highlighted by Tim Harford in a recent episode of BBC Radio 4\u2019s More or Less<\/a>.<\/p>\n\n\n\n

Here at the Economics Observatory, our commitment is to provide balanced, evidence-driven analysis of the challenges facing the UK economy \u2013 from Covid-19 and Brexit to climate change and inequality. Grappling with these questions has revealed the value of analysing questions from more than one angle. Sometimes taking a step back and getting a \u2018zoomed-out\u2019 view can help researchers spot particular patterns. In other cases, it\u2019s useful to drill down into the data, uncovering the hidden truths behind the headlines. This week\u2019s articles have done both.<\/p>\n\n\n\n

Measuring the crisis<\/h3>\n\n\n\n

Meeting the challenges of Covid-19 has required mammoth levels of public spending, leading governments around the world to borrow vast sums of cash. This week we asked whether the balance sheets of central banks \u2013 often the \u2018lenders of last resort\u2019 \u2013 can handle the challenges of Covid-19<\/a>.<\/p>\n\n\n\n

To address this question, Willem Buiter takes what I call a zoomed-out approach, focusing on the bigger picture of central banks\u2019 assets and liabilities in economies around the world.<\/p>\n\n\n\n

What we learn is that in response to the crisis, the European Central Bank, the US Federal Reserve and the Bank of Japan have all dramatically increased the size of their balance sheets, representing a surge in central bank lending (see figure below). Viewing the crisis from this perspective helps us see the shift in its historical context, highlighting how Covid-19 differs from, say, the global financial crisis of 2007-09.<\/p>\n\n\n\n

Balance sheet (% of 2019 GDP)<\/h4>\n\n\n
\n
<\/div>\n\n