Monetary policy transformation of major central banks during the COVID-19 pandemic

Abstract

The paper aims to assess the scope, effectiveness and key instruments of monetary policy in advanced and emerging markets during the first wave of the COVID-19 pandemic. The methodological basis of the study was the reports of the central banks of the sample countries and the data of international organizations and financial market participants on monetary policies. The author assesses the scope of financial support for the economy by the central banks of the largest advanced and emerging markets during the crisis, including the size and share of quantitative easing in its total volume. The study identifies and characterizes the main groups of monetary policy measures during the COVID-19 pandemic, and also shows the monetary policy differences of advanced and emerging economies during the pandemic. The paper highlights larger direct financial support from the central banks of advanced countries. The difference in monetary policy instruments is that advanced economies use traditional monetary policy measures while emerging economies widely apply unconventional monetary policy instruments, primarily quantitative easing. The article presents a preliminary assessment of the effectiveness of monetary policy in China and Russia. The author concludes that the consequences of the monetary policy pursued by advanced countries in 2020 may lead to long-term stagnation in these countries and the rapid recovery of emerging markets due to the inflow of speculative capital from advanced countries. The study provides a post-pandemic forecast of the general direction of monetary policy and its driving factors. Enormous direct financial support, primarily through quantitative easing, from the central banks of advanced countries in 2020 had a positive impact on the economy in the short run, but the long-term consequences of such policies require further research.