Thinking Beyond the Pandemic: Monetary Policy Challenges in the Medium- to Long-Term

Marek Dabrowski

No 504, CASE Reports from CASE-Center for Social and Economic Research

Abstract: The economic characteristics of the COVID-19 crisis differ from those of previous crises. It is a combination of demand- and supply-side constraints which led to the formation of a monetary overhang that will be unfrozen once the pandemic ends. Monetary policy must take this effect into consideration, along with other pro-inflationary factors, in the post-pandemic era. It must also think in advance about how to avoid a policy trap coming from fiscal dominance. This paper is organized as follows: Chapter 2 deals with the economic characteristics of the COVID-19 pandemic and its impact on the effectiveness of the monetary policy response measures undertaken. In Chapter 3, we analyse the monetary policy decisions of the ECB (and other major CBs for comparison) and their effectiveness in achieving the declared policy goals in the short term. Chapter 4 is devoted to an analysis of the policy challenges which may be faced by the ECB and other major CBs once the pandemic emergency comes to its end. Chapter 5 contains a summary and the conclusions of our analysis.

Keywords: COVID-19 pandemic; monetary policy; forced saving; monetary overhang; quantitative easing; inflation; fiscal dominance (search for similar items in EconPapers)
JEL-codes: E31 E41 E51 E52 E58 E62 E63 F62 H62 H63 (search for similar items in EconPapers)
Date: 2021-04-09
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:sec:report:0504

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