BPEA | Spring 2023

COVID-19 credit policies around the world

Size, scope, costs, and consequences

Man holding money and globe with surgical mask.
Editor's note:

The paper summarized here is part of the Spring 2023 edition of the Brookings Papers on Economic Activity (BPEA), the leading conference series and journal in economics for timely, cutting-edge research about real-world policy issues. The conference draft of this paper was presented at the Spring 2023 BPEA Conference (recordings and slides are available via the link). The final version was published in the Spring 2023 issue by Johns Hopkins University Press. Submit a proposal to present at a future BPEA conference here.

Download final paper with online appendix, discussion comment and general discussion summary

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Large-scale interventions in credit markets were an important, but often under-appreciated, element of many countries’ efforts to support their economies during the COVID-19 pandemic, suggests a paper discussed at the Brookings Papers on Economic Activity (BPEA) conference on March 31.

The authors—Gee Hee Hong of the International Monetary Fund and Deborah Lucas of the Massachusetts Institute of Technology—focus on the credit policies introduced by seven large, advanced-economy countries: France, Germany, Italy, Japan, Spain, the United Kingdom, and the United States. They consider government loan guarantee and direct lending programs for firms as well as large-scale forbearance policies which allowed many borrowers to stop making payments on home mortgages, small business loans, and student loans.

“These credit policies significantly increased the resources in the pockets of firms and households,” the authors write.

In their paper—COVID-19 Credit Policies around the World: Size, Scope, Costs, and Consequences—the authors discuss the best way to evaluate the size of credit policies in terms of the additional resources they provided to households and businesses and also the cost of credit policies (to make them most comparable with traditional fiscal policies). They also discuss the pros and cons of different policy choices. They apply their suggested methodology to produce new estimates of the amount of additional funding provided by credit and forbearance policies. They then use the estimates to re-evaluate the effective size of government interventions and their potential macroeconomic effects.

The authors’ tabulations suggest the additional funds obtained via credit and forbearance programs, combined with increases in traditional fiscal spending, represented a much larger government response across the seven advanced economies than has previously been recognized. The authors estimate traditional fiscal support at 14.5% of the countries’ gross domestic product (GDP). Adding credit support and forbearance to the mix, brings the total resources provided to 22% of GDP.

Hong and Lucas Figure 1, BPEA spring 2023

The total amount of assistance provided across countries is also more uniform when credit support is included, the authors observe. Some countries, such as Spain and Italy, relied more heavily on credit policies than fiscal spending while other countries, such as the United States, Japan and the United Kingdom, used fiscal programs much more than credit policies. However, combining estimates of credit policies and fiscal programs (as a percentage of their GDPs) reveals much less variation across countries in total government resources provided.

Including credit and forbearance also seems to better explain certain macroeconomic outcomes than traditional fiscal policy alone. Real (inflation-adjusted) GDP growth across the seven countries is highly correlated with the sum of incremental resources provided by credit and fiscal policies but only weakly correlated with fiscal policy alone. Including credit also better explains the differential increases in savings rates across those countries.

“These credit policies significantly increased the resources in the pockets of firms and households”

“Economists generally do not give credit policy the standalone status accorded to monetary and fiscal policies,” the authors write. “An unfortunate side effect of that omission is that the costs and other information about credit policies are poorly and inconsistently measured.”

Consequently, governments often construct credit policies without a good understanding of their long-term costs and risks, according to the authors. For example, credit policies can mask the build-up of future costs that would be realized if borrowers later default on the loans. And although expansionary fiscal and monetary policies are often cited as contributing to increased inflation after the first year of the pandemic, credit policies also likely played a role. Additionally, the relaxation of regulatory requirements that often accompany credit policies may have contributed to overly optimistic perceptions about the health of the financial system and household finances.

On the other hand, a well-designed and well-targeted credit program with a low risk of default can quickly provide a substantial amount of money to households and businesses at a much lower cost than direct government spending, according to the authors.


Hong, Gee Hee and Deborah Lucas. 2023. “COVID-19 Credit Policies around the World: Size, Scope, Costs, and Consequences.” Brookings Papers on Economic Activity. Spring. 289-333.

Auerbach, Alan J. 2023. “Comment on ‘COVID-19 Credit Policies around the World: Size, Scope, Costs, and Consequences’.” Brookings Papers on Economic Activity. Spring. 334-341.



  • Acknowledgements and disclosures

    The International Monetary Fund reviewed this paper for disclosure of sensitive information. The authors did not receive financial support from any firm or person for this paper or from any firm or person with a financial or political interest in this paper. The authors are not currently an officer, director, or board member of any organization with a financial or political interest in this paper.

    Carmen Reinhart provided a thoughtful discussion on the conference version of this paper at the Spring 2023 BPEA Conference.

    David Skidmore authored the summary language for this paper. Chris Miller assisted with data visualization.