COVID-19 and Monetary Policy with Zero Bounds: A Cross-Country Investigation
22 Pages Posted: 11 May 2020 Last revised: 27 Apr 2021
Date Written: March 28, 2021
Using daily data on policy rates from 28 advanced economies and 32 emerging markets, this paper investigates the monetary policy reaction function of central banks during the Coronavirus Disease 2019 (COVID-19) outbreak. The results show that emerging markets or countries without a zero bound on their interest rates were able to reduce interest rates as a reaction to reduced economic activity and to the volatility in their exchange rates, whereas advanced economies or countries with a zero bound on their interest rates were not. Several policy implications follow for countries with a zero bound on their interest rates amid COVID-19.
Keywords: COVID-19, Coronavirus, Monetary Policy, Reaction Function, Google Mobility, Exchange Rate
JEL Classification: E52, E58
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