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Monetary Policy and COVID-19


  • Michal Brzoza-Brzezina

    (SGH Warsaw School of Economics)

  • Marcin Kolasa

    (SGH Warsaw School of Economics)

  • Krzysztof Makarski

    (SGH Warsaw School of Economics)


We study the macroeconomic effects of the COVID-19 epidemic in a quantitative dynamic general equilibrium setup with nominal rigidities. First, we evaluate various containment policies and show that they allow to dramatically reduce the welfare cost of the disease. Then we investigate the role that monetary policy, in its capacity to manage aggregate demand, should play during the epidemic. According to our results, treating the observed output contraction as a standard recession leads to a bad policy, irrespective of the underlying containment measures. We evaluate how monetary policy should resolve the trade-off between stabilizing the economy and containing the epidemic. We find that containment policies and monetary policy are complementary. If no administrative restrictions are implemented, the second motive prevails, and, despite the deep recession, optimal monetary policy is contractionary. Conversely, if sufficient containment measures are introduced, central bank interventions should be expansionary and help stabilize economic activity.

Suggested Citation

  • Michal Brzoza-Brzezina & Marcin Kolasa & Krzysztof Makarski, 2022. "Monetary Policy and COVID-19," International Journal of Central Banking, International Journal of Central Banking, vol. 18(1), pages 41-80, March.
  • Handle: RePEc:ijc:ijcjou:y:2022:q:1:a:2

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    References listed on IDEAS

    1. James B. Bullard, 2020. "Expected U.S. Macroeconomic Performance during the Pandemic Adjustment Period," The Regional Economist, Federal Reserve Bank of St. Louis, vol. 28(1), March.
    2. Moll, Benjamin & Kaplan, Greg & Violante, Giovanni, 2020. "The Great Lockdown and the Big Stimulus: Tracing the Pandemic Possibility Frontier for the U.S," CEPR Discussion Papers 15256, C.E.P.R. Discussion Papers.
    3. Ichino, Andrea & Favero, Carlo A. & Rustichini, Aldo, 2020. "Restarting the economy while saving lives under Covid-19," CEPR Discussion Papers 14664, C.E.P.R. Discussion Papers.
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    5. Callum Jones & Thomas Philippon & Venky Venkateswaran, 2021. "Optimal Mitigation Policies in a Pandemic: Social Distancing and Working from Home [A simple planning problem for covid-19 lockdown]," The Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5188-5223.
    6. Mercedes Yanes-Lane & Nicholas Winters & Federica Fregonese & Mayara Bastos & Sara Perlman-Arrow & Jonathon R Campbell & Dick Menzies, 2020. "Proportion of asymptomatic infection among COVID-19 positive persons and their transmission potential: A systematic review and meta-analysis," PLOS ONE, Public Library of Science, vol. 15(11), pages 1-21, November.
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    Cited by:

    1. Sabina Marchetti & Alessandro Borin & Francesco Paolo Conteduca & Giuseppe Ilardi & Giorgio Guzzetta & Piero Poletti & Patrizio Pezzotti & Antonino Bella & Paola Stefanelli & Flavia Riccardo & Stefano, 2022. "An Epidemic Model for SARS-CoV-2 with Self-Adaptive Containment Measures," Questioni di Economia e Finanza (Occasional Papers) 681, Bank of Italy, Economic Research and International Relations Area.
    2. Benmir, Ghassane & Jaccard, Ivan & Vermandel, Gauthier, 2023. "Optimal monetary policy in an estimated SIR model," European Economic Review, Elsevier, vol. 156(C).
    3. Lepetit, Antoine & Fuentes-Albero, Cristina, 2022. "The limited power of monetary policy in a pandemic," European Economic Review, Elsevier, vol. 147(C).
    4. Jaccard, Ivan, 2022. "The trade-off between public health and the economy in the early stage of the COVID-19 pandemic," Working Paper Series 2690, European Central Bank.
    5. Trabandt, Mathias, 2023. "Comment on “Optimal monetary policy in an estimated SIR model by G. Benmir, I. Jaccard, and G. Vermandel”," European Economic Review, Elsevier, vol. 158(C).
    6. Jakub Rybacki & Michał Gniazdowski, 2023. "Macroeconomic forecasting in Poland: lessons from the external shocks," Bank i Kredyt, Narodowy Bank Polski, vol. 54(1), pages 45-64.

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    More about this item

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • I1 - Health, Education, and Welfare - - Health
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty


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