A Critical COVID-19 Economic Policy Tool: Retrospective Insurance

19 Pages Posted: 23 Mar 2020

See all articles by Alistair Milne

Alistair Milne

Loughborough University - School of Business and Economics

Date Written: March 21, 2020

Abstract

The COVID-19 pandemic is a major economic shock. With no comparable event having occurred since the 1918 Spanish Flu, and a rapidly changing public health situation, economic policy makers are largely having to improvise their responses. This note assesses the scale of this large shock, suggesting that it is about 10% of global GDP so around five times as large as the credit and liquidity problems that created the global financial crisis of 2007-2008. It then examines the economic policy response, suggesting that to be as effective as possible the response must address two distinct objectives: offset the deflationary economic shock and provide targeted support to those most directly affected. It proposes a surprisingly inexpensive framework – “retrospective insurance” at a net additional cost only 2% of GDP – that can guide the allocation of public resources to ensure no business goes under as a result of the pandemic and all who merit protection get support.

Keywords: Coronavirus, COVID-19, Disaster Risk, Financial Crises, Fiscal policy, Insurance, Monetary policy, Pandemic risk, Systemic Risk

JEL Classification: E62, E65, G01, G22, H50

Suggested Citation

Milne, Alistair K. L., A Critical COVID-19 Economic Policy Tool: Retrospective Insurance (March 21, 2020). Available at SSRN: https://ssrn.com/abstract=3558667 or http://dx.doi.org/10.2139/ssrn.3558667

Alistair K. L. Milne (Contact Author)

Loughborough University - School of Business and Economics ( email )

Epinal Way
Loughborough
Leicestershire, LE11 3TU
United Kingdom

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