Macro-Financial Stability in the COVID-19 Crisis: Some Reflections

Abstract

The global financial system has shown remarkable resilience during the COVID-19 pandemic, despite a sharp decline in economic activity and the initial financial market upheaval in March 2020. This paper takes stock of the factors that contributed to this resilience, focusing on the role of monetary and financial policies. In response to the pandemic-induced crisis, major central banks acted swiftly and decisively, cutting policy rates, introducing new asset purchase programs, providing liquidity support for the banking system, and creating several emergency facilities to sustain the flow of credit to the real economy. Several emerging market central banks also deployed asset purchase programs for the first time. While the pandemic crisis has underscored the importance of policies in preventing calamitous financial outcomes, it has also brought to the fore some unintended consequences of policy actions-in particular, of providing prolonged monetary policy support and applying regulation to specific segments of the financial system rather than taking a broader approach-that could undermine financial stability in the future.

Causalidad y volatilidad en el índice Colcap de la Bolsa de valores de Colombia por contagios y muertes por Covid-19

“…The measurement of volatility is of significant importance in economic and financial models, because it allows the identification of asymmetric behaviour in financial returns in order to make a profit in stock markets (19). Volatility is defined as the best indicator of risk forecasting of returns in financial markets (20) and refers to the magnitude of uncertainty associated with changes in the price of an asset.…”

“…As a result, the national government issued Decree 457 of 25 March 2020, which led to the shutdown of the country's economic activity. Similarly, according to data from the Colombian Stock Exchange (Bvc), the Colcap index, which measures the movements of the most listed companies on the Bvc, showed a loss of 47% of its value on 18 March 2020, compared to its closing value on 19 February 2020 (8). Furthermore, in 2019, the Colcap index growth was 0.091% and in the period 2020-2022 it was -0.021%.…”