Monetary policy risks: “new reality”

Abstract

Introduction. The COVID-19 pandemic has forced central banks to make a significant correction of their monetary policy, which has been discussed in many academician publications. At the same time, much less attention has been paid to the question of the risks that arise. Problem Statement. The coronavirus pandemic was the first wave of new disruptive forces that created new and seriously exacerbated some existing risks, including economic ones, and, in particular, those that arise during the implementation of monetary policy, or significantly affect it. Further events caused by the full-scale invasion of Russian troops into Ukraine became the second wave, which became felt throughout the world and only cemented the state of the “new reality”. Purpose. Analysis and systematization of existing risk assessments that arise in connection with the modification of monetary policy in response to the threat of the COVID-19 pandemic, independent identification of additional risks and a comprehensive qualitative assessment of the degree of threats arising from these risks. Methods. The methodology of the system approach, factual, situational analysis and synthesis, and the event analysis method, which is traditional for analyzing whether the relevant event has a significant impact on a certain activity (in our case, monetary policy), were used. Results. The “new reality” caused by the coronavirus pandemic and established by the full-scale invasion of Russian troops into Ukraine led to the emergence of a number of macroeconomic risks that were a direct result of these events (“panic risk”) or its consequences, caused not so much by, for example, the pandemic itself, but ill-conceived, sometimes inadequate anti-pandemic measures resorted to by governments and, to a lesser extent, monetary authorities (risks of economic crisis and stagflation). At the same time, the triggers of these macroeconomic risks, in addition to panic, were some specific financial risks (credit, currency, interest), insufficient attention to the manifestation of which in the conditions of the “new reality” led to the emergence of a serious systemic risk in some countries. In general, however, it was possible to keep the situation under control, which, however, forced the fiscal and monetary authorities to take extraordinary measures. Conclusions. The coronavirus pandemic caused serious upheavals in the field of monetary relations and created new and increased traditional risks for actors in this industry (which, to one degree or another, includes all participants in economic relations). However, considering the qualitative side of the problem, it can be indicated that the mentioned risks are divided, first of all, into i) risks for monetary policy itself and ii) risks arising from the conduct of monetary policy, which pose threats to the relevant sectors of the economy (most often , for the financial and banking system) and return to the monetary authorities in the form of new challenges that will require a certain correction of their policy in the field of monetary relations.