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Economic policy responses to the COVID-19 pandemic: The role of central bank independence

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  • Elgin, Ceyhun
  • Yalaman, Abdullah
  • Yasar, Sezer
  • Basbug, Gokce

Abstract

Is central bank independence (CBI) associated with economic policy responses to mitigate the adverse economic effects of the COVID 19 pandemic? In this paper, we provide cross-country evidence that it does. Our results generally indicate that more independent monetary policy authorities have adopted smaller cuts in the policy rate and reserve requirements. However, fiscal and macro-financial packages are relatively larger in countries with more independent central banks. These results are robust to different sets of control variables and different econometric specifications that include an instrumental variable estimation.

Suggested Citation

  • Elgin, Ceyhun & Yalaman, Abdullah & Yasar, Sezer & Basbug, Gokce, 2021. "Economic policy responses to the COVID-19 pandemic: The role of central bank independence," Economics Letters, Elsevier, vol. 204(C).
    • Handle: RePEc:eee:ecolet:v:204:y:2021:i:c:s0165176521001518
    DOI: 10.1016/j.econlet.2021.109874
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    References listed on IDEAS

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    1. Alberto Alesina & Filipe R. Campante & Guido Tabellini, 2008. "Why is Fiscal Policy Often Procyclical?," Journal of the European Economic Association, MIT Press, vol. 6(5), pages 1006-1036, September.
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    4. Ismihan, Mustafa & Gulcin Ozkan, F., 2004. "Does central bank independence lower inflation?," Economics Letters, Elsevier, vol. 84(3), pages 305-309, September.
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    Cited by:

    1. Muntazir Hussain & Usman Bashir & Ramiz Ur Rehman, 2024. "Exchange Rate and Stock Prices Volatility Connectedness and Spillover during Pandemic Induced-Crises: Evidence from BRICS Countries," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 31(1), pages 183-203, March.
    2. Gia Zoidze & George Abuselidze, 2021. "Covid-19 Pandemic And Currency Risk Analysis In Georgia," Entrepreneurship, Faculty of Economics, SOUTH-WEST UNIVERSITY "NEOFIT RILSKI", BLAGOEVGRAD, vol. 9(2), pages 33-46.
    3. Asongu, Simplice & Ojong, Nathanael & Soumtang, Valentine, 2021. "Central Banks’ responses to the Covid-19 pandemic: The case of the Bank of Central African States," MPRA Paper 111558, University Library of Munich, Germany.
    4. Matsuki, Takashi & Pan, Lei, 2021. "How did Australian financial markets react to the COVID-19 vaccine rollout? Fresh evidence from quantile copula spectrum analysis," MPRA Paper 111136, University Library of Munich, Germany.
    5. Simplice A. Asongu & Nathanael Ojong & Valentine B. Soumtang, 2021. "Central Banks’ responses to the Covid-19 pandemic: The case of the Bank of Central African States," Working Papers of the African Governance and Development Institute. 21/076, African Governance and Development Institute..
    6. Burdekin, Richard C.K. & Nguyen, Quynh, 2023. "Daily monetary policy reactions to the pandemic: The Australian case," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 24-32.

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    More about this item

    Keywords

    COVID-19; Central bank independence; Monetary policy; Fiscal policy;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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