Sudden and sharp increases in the cost of essential goods and services—as observed during the global food and energy shock of 2007–08, after Russia’s invasion of Ukraine, as well as more recently following the conflict in the Middle East—can severely strain households, especially those with the lowest incomes, and complicate macroeconomic stabilization. Many countries have complemented monetary policy with unconventional fiscal and regulatory measures (e.g., transfers, price caps, subsidies, tax cuts, export bans), often amid severe political pressure and social unrest, to shield households and firms during so-called cost-of-living crises (COLCs).
As such episodes are likely to recur in a more shock prone world, the Analytical Corner (AC) presentation – based on the forthcoming WEO chapter for October 2026 – will assess how stabilization policies can help economies cope with these episodes. After characterizing the aggregate and distributional dynamics of COLCs across country groups and over time, the presentation will take stock of the wide range of unconventional fiscal tools deployed during these episodes and evaluate how effective they have been in reaching affected households and mitigating welfare losses. Looking forward, the presentation will show model-based simulations to assess when, under which conditions, and at what cost there may be an economic case to complement monetary policy with unconventional fiscal measures during COLCs.
