Measuring central bank policies in COVID-19 era

OpenAlex English

COVID-19 quickly turned into a disaster that spread worldwide and resulted in extraordinary economic losses. Policies implemented to combat with negative effects of COVID-19 vary due to differences in economic and institutional structures of countries. In this study, an index called Monetary Policy Response Index (MPRI) was developed to measure central banks’ policy diversity and differences were examined by grouping countries according to income level and governance indicators. Although there are some exceptions, countries with high economic prosperity or higher development levels exhibit greater diversity of measures than other countries. It is important to understand the factors that determine MPRI values in order to interpret them. The results of the empirical analysis conducted for this purpose indicate that the main factors determining the diversity of economic responses are institutional structure, demographic characteristics and level of economic prosperity. In conclusion, understanding differences between countries is important for assessing the effects of proactive policy responses by central banks and determining the most effective measures against similar shocks in the future. This study demonstrates that central bank responses in pandemics or other crisis situations are shaped by a country’s development and governance capacity and these factors play a decisive role in policy diversity.