This paper aims to examine the current macroeconomic policy repercussions of COVID-19 outbreak on economic policies for both developed and developing countries, introducing basic tools, advantages, pitfalls and limitations of alternative policies. The COVID-19 crisis is characterized by simultaneous both negative supply shock and negative demand shock accompanied by a major break in global supply chains. The severity of the crisis requires extraordinary and comprehensive policy responses.

First response has been to take measures in order to prevent a possible liquidity crisis, avert bankruptcies (protect employment) and encourage private spending. Central banks injected vast amounts of liquidity by policy rate reductions, asset purchasing programs and cutbacks in reserve requirements. Although these policies appear as a security blanket in the short term, they tend to create considerable source of instability on the financial system and macroeconomic balance in the medium and long term. Secondly, large fiscal stimulus, tax relief (or tax deferral), and wage subsidies have been implemented to increase the income of households affected by the crisis and compensate the lost revenue for firms. Furthermore, substantial public spendings have been operated to increase economic activities and support the healthcare system and medical sector. However, the pitfalls of these policies are the considerable burden on the public budget and the medium- and long-term performance of the rescued firms.

Finally, the study also presents important challenges of the COVID-19 crisis that many economies will have to deal with at the post-vaccine period. Some of them are substantial increases in public debt in government and in the balance sheets of central banks, adjustment of working from home at different types of jobs, a dramatic increase in poverty and inequalities, reconstructing global collaboration with a high degree of uncertainty mainly in emerging economies.