Identifying efficient policy mix under different targeting regimes: A tale of two crises

Sayar Ahmad Shah and Bhavesh Garg

Economic Analysis and Policy, 2023, vol. 78, issue C, 975-994

Abstract: We examine the influence of demand shock, supply shock and the monetary policy shock on macroeconomic variables using the New Keynesian Dynamic Stochastic General Equilibrium framework. Our study tries to identify the efficient monetary policy mix as an antidote to the prevailing economic fragilities that originated due to the COVID-19 pandemic and geopolitical conflict in case of India and China. Under both simulated and Bayesian analysis, our findings revealed the inflationary effect of demand and supply shock with a target-oriented monetary policy under sticky prices as the efficient policy tool to counter these effects. The macroeconomic projections depicted the favourable influence of output due to active intervention of target-oriented monetary policy in both these economies.

Keywords: COVID-19; NK-DSGE; Monetary policy; Inflation targeting; Geopolitical conflict (search for similar items in EconPapers)
JEL-codes: C11 C53 C63 C68 D74 E47 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:78:y:2023:i:c:p:975-994

DOI: 10.1016/j.eap.2023.04.019

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