CENTRAL BANKS DURING AND AFTER THE COVID-19 PANDEMIC

Monetary responses to the Covid-19 crisis and the Great Financial Crisis have differed in three important ways. Central banks have drawn on tools inherited from the previous crisis and invented new instruments to combat risks of financial system dislocation. The newfound complementarity between monetary and fiscal policies has created new policy space, including in emerging market economies. And both the FED and the ECB have acknowledged the global nature of the crisis and provided international liquidity in dollars and euros. Will there be a “post-Covid monetary policy”? This raises three fundamental questions. By making their goals even more elusive, will the crisis force central banks to rethink their strategies? Will the current “marriage of convenience” between monetary and fiscal policies subordinate central banks to fiscal imperatives? And does the pandemic risk fuelling public ambivalence towards central banks, increasing discomfort with their power and independence while raising expectations of additional action?