JEFMS Journal

ABSTRACT:

The COVID-19 pandemicis influencing the management of monetarypolicy in its role as regulator of aggregate demand and guarantor of macroeconomicstability. We use a Bayesian VAR framework (BVAR) to provide an analysis of the COVID-19 uncertainty shock on the economy and monetarypolicy response. This analysis shows important conclusions. The uncertainty effect of COVID-19 hits unprecedented aggregate demand and the economy. In addition, it undermines monetary policy action to soften this fall in aggregate demand and curb inflation impacted by the exchange rate effect. We suggest a development of unconventional devices for a gradual recovery of the economy.

KEYWORDS:

Uncertainty, COVID-19, Monetarypolicy, Bayesian VAR

JEL Classification:

C32, E32, E51, E52, E58

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