COVID-19: Crisis-Averse versus Growth-Centric Monetary Policy

Abstract

Policymakers have employed a range of fiscal and monetary tools to address the economic and financial fallout from COVID-19. From ultra-accommodative monetary policy, loan guarantees to income transfers, these policies have averted a depression and supported the private sector. This paper investigates the effectiveness of monetary policy from a crisis-averse and growth-centric standpoint. A qualitative review finds the design of monetary policy to be “crisis-averse” visà-vis COVID-19, with targeted credit and lending incentives from central banks in advanced economies serving as anchors for the financial system. It finds weaker pass-through to the real economy due to the heterogeneity like the shock but finds the current design of monetary policy to be consistent with a gradual convergence of inflation towards the symmetric 2.0% target and at, but slightly below 2.0% for the ECB.