Monetary policy and central banking in the Covid-19:
With the spread of Covid-19 in early 2020, many central banks have continued to struggle to raise inflation. The sudden increase in the economic crisis, severe market volatility, and blinding uncertainty about the impact of the pandemic gave the central bank an unprecedented response in terms of size, speed, and scope. A new CEPR eBook summarizes responses from 16 central banks in advanced and emerging economies, with chapters written by senior central bank officials and economists in each country to explain the actions. Responses vary from country to country, but the topics differ in the size, speed, and scope of the responses; trust in a more multidimensional toolkit; and the ability to emerging markets to behave more like advanced economies.
When the COVID shock hit in early 2020, many central banks were still struggling to raise inflation, having been below the last decade’s target. The sudden increase in the economic crisis, the sharp increase in market volatility, and the blinding uncertainty about the impact of the pandemic in an environment of already low inflation required an unprecedented response from the central bank in terms of speed, scope, and scope. . It was not a typical recession caused by overheating or financial surplus; was comparable to an induced economic coma (Deb et al. 2020). Another recession called for a different response.
Short-term interest rates, already low in most advanced economies, have rapidly fallen to around zero in all advanced economies and even some emerging market economies (Figure 1). While fiscal and health policies are believed to play a key role in fighting the pandemic and generating the recovery, monetary policy continued to play an important role as markets faltered, capital flows to emerging markets plummeted and l economic activity declined dramatically. . As a result, central banks took action during the global financial crisis (JRC). They revived previously developed tools and resources and then expanded them and introduced an entirely new set of programs to support additional parts of the economy (Cantu et al. 2021).
A multidimensional response
The eBook contains chapters that summarize the actions of central banks in eight advanced market economies and eight emerging market economies, including the economic environment in which these actions took place and the reasons for the responses. The Covid shock was an unprecedented problem: a sudden disruption of global economic activity caused by a pandemic. It was a climate of glorious uncertainty that made it extremely difficult to predict growth and inflation. In the spring of 2020, some central banks even decided not to provide the usual forecasts. Furthermore, the financial markets reacted sharply and violently to the shock, with a hunt for money that disrupted financial markets, including the US Treasury market. These market disturbances have raised concerns that the channels through which monetary policy normally operates should not work.