COVID-19 and Monetary policy with zero bounds: A cross-country investigation

Hakan Yilmazkuday

doi:10.1016/j.frl.2021.102103

COVID-19 and Monetary policy with zero bounds: A cross-country investigation

Financ Res Lett. 2022 Jan:44:102103. doi: 10.1016/j.frl.2021.102103. Epub 2021 May 3.

Author

Hakan Yilmazkuday¹

Affiliation

¹ Department of Economics, Florida International University, Miami, FL 33199, USA.

Abstract

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; Exchange rate; Google mobility; Monetary policy; Reaction function.