Covid-19 Uncertainty and Monetary Policy Responses: Evidence From Emerging Market Economies

Abstract

This paper examines the effectiveness of monetary policy transmission in emerging economies during the COVID-19 outbreak. Using data from 14 emerging economies severely affected by the pandemic and the autoregressive distributed lag approach to cointegration, the study examines the effectiveness of monetary policy in affecting output, inflation, and credit. The study finds that: (1) In most economies, the monetary policy transmission to inflation is weakened due to the uncertainty created by the COVID-19 pandemic; (2) in a few economies, the transmission is found to be effective in stabilizing credit and output; and (3) the outbreak of the COVID-19 pandemic induced economic agents to follow a “cautionary” or “wait and see” approach.

COVID-19 policy actions and inflation targeting in South Asia

“…( Asandului et al, 2021 , Baig et al, 2021 , Behera and Rath, 2021 , Boneva et al, 2018 , Jordà et al, 2015 , Long et al, 2022 , Lovcha and Perez-Laborda, 2018 , Musunuru and Jawed, 2022 , Njindan Iyke et al, 2007 , Prabheesh et al, 2003 , Rabanal and Quint, 2013 , Salisu et al, 2021 , Sharma and Sha, 2020 , Smets, 2018 )…”

Did the policy responses influence credit and business cycle co-movement during the COVID-19 crisis? Evidence from Indonesia

“…Conversely, Wei and Han (2021) affirmed that the emergence of this pandemic had weakened the transmission of monetary policy. Similarly, Prabheesh et al (2022) found that the monetary policy transmission during the COVID-19 crisis period is weak in emerging economies due to the “cautionary” or “wait and see” approach followed by the economic agents.…”

Revisiting the impact of foreign portfolio investment on stock market performance during COVID-19 pandemic uncertainty: Evidence from India

“…Numerous studies show the adverse effect of COVID-19 on stock market movements ([ 4 , 10 , 14 , 15 , 17 , 22 , 29 ]; and [ 24 , 25 , 27 , 28 ] [ 21 , 26 , 31 , 32 , 36 , 37 ]). However, the impact of the behaviour of foreign investors in the course of the COVID-19 pandemic on stock market movements is rare.…”