Macroeconomic response to COVID-19

This brief argues that government needs a large response to the COVID-19 crisis, with a package that approaches R1 trillion. A stimulus that large cannot be financed using the conventional mechanisms. Instead, government must use quantitative easing, both to offset the collapse in demand and to finance government expenditure. Interest rate cuts will help but the response to this crisis has to be driven by fiscal policy, because only fiscal policy can replace lost wages and revenue. An inadequate stimulus risks turning a recession into a depression.