The monetary policy during shocks: an analysis of large Asian economies’ response to COVID-19

The economies all over the world that have been adversely affected by the COVID-19 pandemic have recently started to devise different strategies to mitigate its consequences. Therefore, in order to dwell deeper into the measures taken by the policy makers around the world, this paper specifically analyzes how the monetary policies have been devised, in response to COVID-19. For this purpose, this paper has taken into consideration a panel of 8 Asian economies that have been affected the most acutely by the virus, have faced multiple lockdowns, and have also experienced other economic restraints, due to this very phenomenon. In order to compare the possible monetary policy options, and their outcomes during the COVID-19 pandemic, this paper refers to the global recession shock, as a valid point of reference. In addition to this, in order to gain access to the empirical evidence, the ARDL methodology has been applied on the quarterly data from 2005Q3 to 2020Q3. The results of the study have indicated that various plans have been taken into consideration, so as to lessen the consequences of these shocks that have trickled down into the respective economies of these countries. That is to put forth that, in the incidence of global recession, the monetary authorities have resorted to a less prudent stance. Whereas, more flexibility, through a persistent decrease in the policy rate has been observed since the pandemic first hit the world. In this regard, our results imply that a successful, efficient and effective response to the economic consequences of COVID-19, would ideally entail a set of remedial policies and structural reforms.