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The monetary-fiscal policy nexus in the wake of the pandemic

Author

Listed:
  • Michael Chui
  • Tirupam Goel
  • Aaron Mehrotra
  • Kostas Tsatsaronis

Abstract

The Covid-19 pandemic cast the interaction between fiscal and monetary policy in a new light. The pandemic-induced recession made greater demands on both fiscal and monetary policy, triggered the need for closer domestic policy co-ordination, and led to a greater use of central bank balance sheets. This note discusses these issues, drawing on evidence from a survey of emerging market economy (EME) central banks. It first reviews the interaction between monetary and fiscal policy during the first phase of the Covid-19. It then explores the main factors that enabled EMEs to respond in a strongly countercyclical way to the pandemic shock. Finally, it discusses mediumterm policy challenges given that high private and public sector debt levels will need to gradually decline and buffers will have to be built up as the economy returns to normality.

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Suggested Citation

  • Michael Chui & Tirupam Goel & Aaron Mehrotra & Kostas Tsatsaronis, 2022. "The monetary-fiscal policy nexus in the wake of the pandemic," BIS Papers, Bank for International Settlements, number 122.
    • Handle: RePEc:bis:bisbps:122
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    References listed on IDEAS

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    1. Martin S Eichenbaum & Sergio Rebelo & Mathias Trabandt, 2021. "The Macroeconomics of Epidemics [Economic activity and the spread of viral diseases: Evidence from high frequency data]," The Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5149-5187.
    2. Veronica Guerrieri & Guido Lorenzoni & Ludwig Straub & Iván Werning, 2022. "Macroeconomic Implications of COVID-19: Can Negative Supply Shocks Cause Demand Shortages?," American Economic Review, American Economic Association, vol. 112(5), pages 1437-1474, May.
    3. Ryan Niladri Banerjee & Boris Hofmann, 2018. "The rise of zombie firms: causes and consequences," BIS Quarterly Review, Bank for International Settlements, September.
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    1. George Kosgei Kiptum, 2022. "Relationship between Kenya’s economic growth and inflation," SN Business & Economics, Springer, vol. 2(12), pages 1-16, December.
    2. Linas Jurkšas & Rokas Kaminskas & Deimantė Vasiliauskaitė, 2024. "ECB monetary policy communication events: Do they move euro area yields?," Bulletin of Economic Research, Wiley Blackwell, vol. 76(2), pages 596-625, April.

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