The Uncertainty Channel of the Coronavirus
Abstract: The outbreak of the novel coronavirus, or COVID-19, has severely disrupted economic activity through various supply and demand channels. The pandemic can also have pervasive economic impact by raising uncertainty. In the past, sudden and outsized spikes in uncertainty have led to large and protracted increases in unemployment and declines in inflation. These effects are similar to those resulting from declines in aggregate demand. Monetary policy accommodation, such as interest rate cuts, can help cushion the economy from such uncertainty shocks.
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Provider: Federal Reserve Bank of San Francisco
Part of Series: FRBSF Economic Letter
Publication Date: 2020-03-30