COVID-19: Monetary policy in times of crisis

Sarah Holton, Conor Parle, Gillian Phelan and Rebecca Stuart
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Sarah Holton: Central Bank of Ireland
Gillian Phelan: Central Bank of Ireland

No 08/EL/20, Economic Letters from Central Bank of Ireland

Abstract: The global pandemic has warranted swift and substantial policy responses, not least from monetary policy. This letter outlines the scope for monetary policy to react to this unprecedented crisis, in the light of the extensive fiscal policy measures introduced. We explore the interactions between monetary and fiscal policies and the consequent implications for sovereign debt sustainability. The key conclusion is that while monetary policy plays a vital role in supporting fiscal policies in the current crisis, there are important legal, practical and economic issues to consider when calibrating an effective response. This Letter argues that monetary and fiscal policies can support the economy and reinforce each other in fostering a sustainable recovery from the crisis when policymakers carefully consider and take account of these legal and economic issues.

Date: 2020-09
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