Ra hnayaka, Imalka Wasana; Khanam, Rashida; Rahman, Mohammad Ma izu
A icle
Examining mone a y policy measu es and hei impac s
du ing and a e he COVID e a: OECD pe spec i es
Economies
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Sugges ed Ci a ion: Ra hnayaka, Imalka Wasana; Khanam, Rashida; Rahman, Mohammad Ma izu
(2024) : Examining mone a y policy measu es and hei impac s du ing and a e he COVID e a:
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Ci a ion: Ra hnayaka, Imalka Wasana,
Rasheda Khanam, and Mohammad
Ma izu Rahman. 2024. Examining
Mone a y Policy Measu es and Thei
Impac s du ing and a e he COVID
E a: OECD Pe spec i es. Economies 12:
154. h ps://doi.o g/10.3390/
economies12060154
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economies
A icle
Examining Mone a y Policy Measu es and Thei Impac s du ing
and a e he COVID E a: OECD Pe spec i es
Imalka Wasana Ra hnayaka 1,2,3,*, Rasheda Khanam 1,3 and Mohammad Ma izu Rahman 1,3
1School o Business, Uni e si y o Sou he n Queensland, Toowoomba 4350, Aus alia;
[email p o ec ed] (R.K.); [email p o ec ed] (M.M.R.)
2Depa men o Economics, Uni e si y o Colombo, Colombo 00300, S i Lanka
3Cen e o Heal h Resea ch, Uni e si y o Sou he n Queensland, Toowoomba 4350, Aus alia
*Co espondence: [email p o ec ed]
Abs ac : Go e nmen s wo ldwide implemen ed a ious iscal and mone a y measu es o add ess
he ad e se impac s o COVID-19 on hei economies. The pape aims o examine he changes in he
mone a y policy measu es due o COVID-19 and hei impac on mac oeconomic a iables. To explo e
his ela ionship, his s udy u ilizes o nigh ly da a om 2020 o 2023 on he OECD (O ganisa ion o
Economic Co-ope a ion and De elopmen ) coun ies. The s udy employs a Panel Au o eg essi e
Dis ibu ed Lag (ARDL) model o analyze he e ec s o he mone a y policy esponses o he OECD
go e nmen s, and he ob ained esul s e eal ha wi hin OECD coun ies, he p e ailing end o
lowe in e es a e policies eme ged du ing he pandemic. This policy app oach yielded a dual e ec :
lowe ing bo h ou pu g ow h and in la ion a es, while concu en ly exace ba ing unemploymen
a es h oughou he COVID-19 pe iod. Consequen ly, i is clea ha mone a y policies ha e played
a pi o al ole in acili a ing he eco e y om a p o ound economic shock such as he COVID-19
pandemic. Gi en he signi ican economic epe cussions o a pandemic and he c ucial ole ha
mone a y policy plays in sus aining economic s abili y, he appa en lack o a en ion unde sco es he
u gen necessi y o addi ional discou se on his i al subjec .
Keywo ds: COVID-19; mone a y policy; economic g ow h; in la ion; unemploymen
JEL Classi ica ion: F61; I18
1. In oduc ion
The wo ldwide eco e y om he COVID-19 pandemic is an icipa ed o con inue
h oughou 2022 and 2023, d i en by p og ess in global immuniza ion e o s, he im-
plemen a ion o suppo i e mac oeconomic policies in majo economies, and a o able
inancial condi ions. In esponse o he COVID-19 c isis, policymake s ook signi ican
legisla i e ac ions ha in ol ed p o iding subs an ial iscal suppo o businesses and
indi iduals, he eby p e en ing a deepe decline in employmen , incomes, and p oduc i i y
Dö e al. (2022). The success ul deploymen o COVID-19 accines inc eased con idence
among consume s and businesses, leading o a esump ion o economic ac i i ies. This
boos in economic con idence accele a ed eco e y, p omp ing cen al banks o e ise
g ow h p ojec ions upwa ds (Oskam and Da is 2023). On he o he hand, in ad anced
economies, cen al banks and mone a y au ho i ies ha e implemen ed subs an ial measu es
o ease mone a y policy, aiming o bols e he economy and a ain hei in la ion a ge s.
These measu es include lowe ing in e es a es and augmen ing hei go e nmen bond
holdings as pa o hei ese e asse s (Ge le and Ka adi 2011).
The p ima y objec i e o his esea ch is o analyze he e ec s o mone a y policy
measu es on key economic indica o s, such as GDP (G oss Domes ic P oduc ), in la ion, and
unemploymen , du ing he COVID-19 pandemic pe iod and in he pos -pandemic pe iod.
Economies 2024,12, 154. h ps://doi.o g/10.3390/economies12060154 h ps://www.mdpi.com/jou nal/economies
Economies 2024,12, 154 2 o 17
This s udy is mo i a ed by inconsis en mac oeconomic ci cums ances such as heigh -
ened le els o public deb , limi ed mone a y policy lexibili y, and he las ing e ec s on
ce ain segmen s o he labo ma ke . The mos o OECD (O ganisa ion o Economic Co-
ope a ion and De elopmen ) coun ies cu en ly ace an unpa alleled economic si ua ion
in he wake o he p o ound a e ma h o he COVID-19 pandemic. This p edicamen has
been exace ba ed by he su ge in ene gy and ood p ices, d i en by Russia’s in asion o
Uk aine. Gi en hese in ica e ci cums ances, he necessi y a ises o me iculously iden i y
bo h iscal and mone a y policy measu es and hei co esponding impac s.
Many esea che s (Desla e e al. 2020;K i zinge e al. 2021;Naudéand Came on 2021)
a gue ha go e nmen s and hei economic policies ha e demons a ed a clea mishandling
o he COVID-19 pandemic om he e y s a . This ac has become inc easingly appa en
o e ime. The conce n lies in hei cu en misin e p e a ion o he in la iona y s age o he
epidemic, which poses he signi ican isk o a ecession. On he o he hand, o mi iga e
demand, go e nmen s can conside educing hei own expendi u es. Cen al banks ha e
also aken measu es o inc ease he cos o bo owing money, he eby cu bing demand, as
e idenced by he ecen in e es a e hikes in he U.S., Aus alia, and Eu ope (Song and Zhou
2020). Hence, an examina ion o how go e nmen s esponded h ough mone a y policy
measu es o add ess economic g ow h, in la iona y p essu es, and unemploymen du ing
bo h he COVID-19 pe iod and he subsequen pos -pandemic pe iod becomes essen ial.
Since his s udy is based on panel da a analysis, employing a Panel ARDL (Au o e-
g essi e Dis ibu ed Lag) model o 33 OECD coun ies om 2020 o 2023, i is impo an
o no e ha each coun y has di e en exchange a e policy egimes and in e es a e policy
decisions. This s udy does no accoun o hese di e ences due o da a a ailabili y and
o a oid complexi ies. The e o e, i elaxes he condi ions ega ding exchange a e policy
egimes and dis inc in e es a e ules o he mone a y policies o each espec i e coun y.
A pandemic is de ined as a widesp ead ou b eak o a con agious disease, ypically
a ec ing a as geog aphic a ea and leading o p o ound socie al and economic dis up ions.
Accu a e policy decisions made by a coun y a e o pa amoun impo ance in shaping
economic g ow h, con olling in la ion, and managing employmen le els, especially in
he ace o such signi ican economic shocks. Mone a y policy s ands ou as a c i ical
ac o in his equa ion, gi en ha economic e ec s and challenges o en pe sis e en a e
he immedia e heal h c isis subsides. Su p isingly, he e has been a dea h o subs an ial
discussion and ocus on he speci ic ques ion o how mone a y policy should be conduc ed
du ing a pandemic and in he pos -pandemic eco e y phase. Conside ing he subs an ial
economic ami ica ions o a pandemic and he pi o al ole ha mone a y policy plays in
main aining economic s abili y, his lack o a en ion unde sco es he p essing need o
u he discussion on his c i ical opic. The no el y o his esea ch lies in i s compa a i e
analysis o he e ec i eness and sus ainabili y o di e en mone a y policy esponses ac oss
a ious OECD coun ies. I p o ides aluable insigh s in o he e ol ing ole o cen al
banks in c isis managemen and con ibu es o he b oade unde s anding o how mone a y
policy can be adap ed o unp eceden ed global challenges.
This pape is s uc u ed as ollows: Sec ion 2discusses he ole o COVID-19 in he
cu en economic p oblems and Sec ion 3p o ides a li e a u e e iew, while Sec ion 4
desc ibes he me hodology. In Sec ion 5, we examine he economic impac o he COVID-19
pandemic and he mone a y policy esponses, and we hen discuss he deploymen o iscal
policies du ing he COVID-19 c isis in OECD coun ies. Finally, Sec ion 6concludes he
s udy by summa izing he indings, p esen ing policy implica ions, acknowledging he
limi a ions o he exis ing li e a u e, and p oposing a enues o u u e esea ch.
2. The Global Economic Challenges du ing he COVID-19 Pandemic
The global economy has expe ienced a p o ound impac due o he COVID-19 pan-
demic, esul ing in widesp ead dis up ions o his o ical g ow h ends in coun ies ac oss
he globe. Ne e heless, as mos COVID-19- ela ed es ic ions and heal h measu es a e
being li ed, economic g ow h is now showing signs o eco e ing and aligning wi h longe -
Economies 2024,12, 154 3 o 17
e m pa e ns. Howe e , i is c ucial o acknowledge ha he economic consequences o he
pandemic we e e iden om he beginning, and i has aken a oll on public heal h and
human li es. The e o e, his unp eceden ed global c isis is widely acknowledged as he
mos signi ican economic shock wi nessed in decades.
The COVID-19 pandemic unde sco ed he u gency o aking immedia e ac ion o
mi iga e i s heal h- ela ed and economic consequences, o sa egua d ulne able popula ions,
and o es ablish a ounda ion o long- e m eco e y. I was c ucial o all he coun ies,
many o which con on o midable ulne abili ies, o enhance hei public heal h sys ems,
ackle he issues a ising om in o mal sec o s, and implemen e o ms ha will os e
obus and sus ainable g ow h beyond he heal h c isis.
Fo many economies, eal GDP has eached o su passed p e-pandemic le els obse ed
in he ou h qua e o 2019. Ne e heless, he e emains signi ican a ia ion in economic
p og ess ac oss di e en coun ies (Jackson e al. 2020). The Wo ld Economic Si ua ion and
P ospec s epo unde sco es he con inued epe cussions o he COVID-19 pandemic, along
wi h una ended mac oeconomic s uc u al challenges, which p esen subs an ial isks
o he global economy. P ojec ed o 2023, global GDP g ow h is an icipa ed o be 2.6%,
ma king he lowes annual a e since he global inancial c isis, excluding he in luence
o he 2020 pandemic. Howe e , he e is a sligh eco e y expec ed in 2024, wi h g ow h
p edic ed o imp o e o 2.9% (Sei ze e al. 2023). The economic consequences o he
COVID-19 c isis a y ac oss di e en egions. The ex en o he impac is in luenced by
egional economic specializa ion in sec o s ha a e di ec ly o indi ec ly a ec ed by he
c isis, as well as he le el o in ol emen in global alue chains (Boyce e al. 2023).
In 2022, he global economy wi nessed a signi ican su ge in in la ion, a ec ing bo h
de eloped and eme ging economies. This inc ease in in la ion was d i en by a combina ion
o global ac o s ha con ibu ed o and ampli ied he ongoing wo ldwide in la iona y
end. The eco e y o demand ollowing he COVID-19 c isis, coupled wi h a ious supply
challenges, played a key ole in exe ing p icing p essu es on he economy (Hazakis 2022).
The COVID-19 pandemic has had a no able impac on ele a ing in la ion a es in
nume ous coun ies. Sec o s ha expe ienced signi ican dis up ions due o lockdown
measu es, including ec ea ion, accommoda ion, and anspo a ion, ha e been majo
con ibu o s o he in la ion su ge in 2022. In he con es o OECD coun ies, he in la ion
a e in he OECD a ea expe ienced a no able and conside able inc ease in Decembe 2021
when compa ed o he same 12-mon h pe iod in 2020. This su ge in in la ion was pa ially
d i en by a signi ican ise in Tu key’s annual in la ion (OECD 2023). Wi hin he OECD
a ea, ene gy p ices wi nessed a subs an ial inc ease o 25 pe cen o e he 12-mon h pe iod
leading up o Decembe 2021. When excluding ood and ene gy, OECD yea -on-yea
in la ion also ose sha ply o 4.6% and made a signi ican con ibu ion o headline in la ion
in se e al majo economies. Looking a he en i e y o 2022, he annual in la ion a e
in he OECD ose o 4.0%, a signi ican inc ease compa ed o he 1.4% eco ded in 2021,
ma king he highes annual a e age a e since 2000. These s a is ics indica e ha he
global economy aces a my iad o challenges, including high in la ion, igh ening inancial
condi ions ac oss mos egions, Russia’s in asion o Uk aine, and he COVID-19 pandemic.
These ac o s a e exe ing signi ican p essu e on economic p ospec s. The no maliza ion o
mone a y and iscal policies, which p o ided unp eceden ed suppo du ing he pandemic,
is now dampening demand as policymake s aim o cu b in la ion and es o e s abili y.
Consequen ly, an inc easing numbe o economies a e wi nessing a slowdown, and some
e en ace con ac iona y g ow h. The u u e heal h o he global economy hinges c i ically
on he p ecise calib a ion o mone a y policy, he esolu ion o he Uk ainian con lic , and
he po en ial o addi ional supply-side shocks s emming om he ongoing pandemic.
The economic shocks o 2022 a e exace ba ing he ongoing economic sca ing om
he pandemic (Figu e 1), pa icula ly o all OECD economies. A he s a o 2022, he
pandemic’s se e e impac on global GDP was al eady a a nega i e alue o abou
−
0.05 pe -
cen by Q1 2023. In la ion inc eased om 4.4 pe cen in Q3 2021 o 10.39 pe cen in Q3 2022,
be o e declining o 8.56 pe cen in Q1 2023. P ices in he hi d qua e o 2023 declined
Economies 2024,12, 154 4 o 17
a 6.1 pe cen lowe han in he same qua e o 2022. Rising in la ion wi h declining eal
wages and declining unemploymen cha ac e ized he mac oeconomic si ua ion in 2021 in
many economies. The e o e, he las ing educ ion o in la ion will depend signi ican ly on
he de e mina ion o mone a y policymake s.
Economies 2024, 12, x FOR PEER REVIEW 4 o 17
con lic , and he po en ial o addi ional supply-side shocks s emming om he ongoing
pandemic.
The economic shocks o 2022 a e exace ba ing he ongoing economic sca ing om
he pandemic (Figu e 1), pa icula ly o all OECD economies. A he s a o 2022, he
pandemic’s se e e impac on global GDP was al eady a a nega i e alue o abou –0.05
pe cen by Q1 2023. In la ion inc eased om 4.4 pe cen in Q3 2021 o 10.39 pe cen in Q3
2022, be o e declining o 8.56 pe cen in Q1 2023. P ices in he hi d qua e o 2023 de-
clined a 6.1 pe cen lowe han in he same qua e o 2022. Rising in la ion wi h declining
eal wages and declining unemploymen cha ac e ized he mac oeconomic si ua ion in
2021 in many economies. The e o e, he las ing educ ion o in la ion will depend signi i-
can ly on he de e mina ion o mone a y policymake s.
Figu e 1. Changes in Majo Mac oeconomic Va iables Ac oss OECD Coun ies. Sou ce: OECD s a-
is ics (2023).
On he o he hand, he igh ening o labo ma ke s coupled wi h educed labo sup-
ply in con ac -in ensi e indus ies due o heal h conce ns, changing wo ke p e e ences,
and limi a ions on c oss-bo de mo emen , has likely added o he in la iona y p essu es.
Mo eo e , nume ous se ice sec o businesses ha a e pa icula ly ulne able o hese
obs acles may ace insu moun able challenges, leading o an escala ion in he isk o job
losses and bank up cies. Consequen ly, his could ad e sely impac o e all demand in he
economy.
3. Li e a u e Re iew
This pape con ibu es o he apidly expanding li e a u e on mone a y policy eac-
ions o he COVID-19 pandemic and he effec i eness o he policy measu es in esponse.
The e a e wo main s ands in he li e a u e: he i s in es iga es he heo e ical back-
g ound, while he second examines he impac o he COVID-19 shock on GDP g ow h,
in la ion a es, and unemploymen due o mone a y policy in e ac ions and hei effec-
i eness.
Acco ding o Keynesian economic heo y, swi go e nmen ac ions a e conside ed
c ucial o s imula ing demand and acili a ing economic eco e y du ing c ises, as high-
ligh ed in p io esea ch ( an Aa le 2017). Keynes emphasized ha a policy o go e nmen
non-in e en ion would be a g a e mis ake, leading o a decline in economic ou pu and
p olonged suffe ing o millions o indi iduals (By ialsen e al. 2021; Alozie e al. 2020).
Consequen ly, bo h adi ional and non- adi ional economis s seem o ag ee on he im-
po ance o combining sho - e m supply-side policies wi h adi ional Keynesian
Figu e 1. Changes in Majo Mac oeconomic Va iables Ac oss OECD Coun ies. Sou ce: OECD
s a is ics (2023).
On he o he hand, he igh ening o labo ma ke s coupled wi h educed labo supply
in con ac -in ensi e indus ies due o heal h conce ns, changing wo ke p e e ences, and
limi a ions on c oss-bo de mo emen , has likely added o he in la iona y p essu es.
Mo eo e , nume ous se ice sec o businesses ha a e pa icula ly ulne able o hese
obs acles may ace insu moun able challenges, leading o an escala ion in he isk o job
losses and bank up cies. Consequen ly, his could ad e sely impac o e all demand in
he economy.
3. Li e a u e Re iew
This pape con ibu es o he apidly expanding li e a u e on mone a y policy eac ions
o he COVID-19 pandemic and he e ec i eness o he policy measu es in esponse. The e
a e wo main s ands in he li e a u e: he i s in es iga es he heo e ical backg ound,
while he second examines he impac o he COVID-19 shock on GDP g ow h, in la ion
a es, and unemploymen due o mone a y policy in e ac ions and hei e ec i eness.
Acco ding o Keynesian economic heo y, swi go e nmen ac ions a e conside ed
c ucial o s imula ing demand and acili a ing economic eco e y du ing c ises, as high-
ligh ed in p io esea ch ( an Aa le 2017). Keynes emphasized ha a policy o go e nmen
non-in e en ion would be a g a e mis ake, leading o a decline in economic ou pu and
p olonged su e ing o millions o indi iduals (By ialsen e al. 2021;Alozie e al. 2020). Con-
sequen ly, bo h adi ional and non- adi ional economis s seem o ag ee on he impo ance
o combining sho - e m supply-side policies wi h adi ional Keynesian expansiona y
measu es o a e a ecession and add ess p ice luc ua ions du ing he cu en c isis
(Eichenbaum e al. 2021; an Aa le 2017), God i Polli e al. (2020).
Th oughou his o y, heal h pandemics ha e in lic ed signi ican shocks on he U.S.
economy. Examples include he lu pandemics o 1957 and 1968, which we e ollowed by
economic down u ns, as well as he highly dis up i e impac o he 1918 Spanish lu on
socie y as a whole. The unique na u e o a pandemic leads o bo h a demand shock, as
consume s cu ail hei ac i i ies, and a supply shock, as businesses ei he close o scale
back hei ope a ions. Addi ionally, he sudden onse o hese ex eme shocks p o ides
Economies 2024,12, 154 5 o 17
li le o no ad ance wa ning o consume s, businesses, o go e nmen s, esul ing in a swi
and p onounced shi in o e all economic condi ions (Wol 2014).
The global inancial ma ke aced in ensi ied challenges due o he COVID-19 ou b eak,
p omp ing cen al banks in de eloped coun ies o implemen uncon en ional measu es o
alle ia e he ad e se e ec s. I is c ucial, bo h om an academic and policy pe spec i e,
o comp ehend he consequences o he pandemic shock and assess he e ec i eness o
he implemen ed policies aimed a mi iga ing i s impac (Ka aman 2022). While some
economis s a gue ha noncon en ional mone a y ools may o se he e ec o he lowe
bound and p o ide space o mone a y policy (Be nanke and Yellen 2020), o he s sugges
ha , due o he changing na u e o mac oeconomics, he abili y o mone a y policy o
accomplish much when in e es a es a e a hei lowe bound is limi ed (DeLong e al. 2012;
Eichenbaum 2019;Co adin e al. 2021;O mans and T ipie 2021). O mans and T ipie
(2021) p esen e idence ha iscal and mone a y policy measu es e ec i ely lowe ed bond
yields o Eu opean economies. In con as , Lepe i and Fuen es-Albe o (2022) s udied he
e ec s o an unan icipa ed decline in in e es a es, concluding ha mone a y policy is likely
o be ine ec i e a he heigh o he pandemic bu should aid in sus aining he eco e y in
economic ac i i y once he i us begins o dissipa e. Fu he , he high in la ion ollowing
COVID-19 is no ansi o y bu pe sis en . The ecen economic eco e y and he excessi e
supply o money om iscal and mone a y policies ha e inc eased he co e in la ion a e
beyond a empo a y phase (Gha ehgozli and Lee 2022;Lepe i and Fuen es-Albe o 2022).
Fu he mo e, con en ional mone a y policy has a minimal impac on GDP du ing pan-
demics, whe eas uncon en ional mone a y policy measu es ha e he po en ial o mi iga e
he o e all decline in GDP (Ge le and Ka adi 2011). Yilmazkuday (2020) examines he
e ec s o U.S. mone a y policy, speci ically policy a es, on exchange a es in 21 eme ging-
ma ke coun ies du ing he pandemic pe iod. The indings indica e ha a nega i e shock
in U.S. mone a y policy esul ed in cu ency dep ecia ion in eme ging ma ke s. Bha and
Mallia is (2021) disco e ha he Fede al Rese e’s uncon en ional mone a y policies,
implemen ed in esponse o he 2008 inancial c isis, could e ec i ely educe longe - e m
in e es a es. They sugges ha hese indings hold aluable insigh s o cen al banks
in add essing he inancial and economic epe cussions o COVID-19 (Bha and Mallia is
2021;Yilmazkuday 2020).
Acco ding o Wei and Han (2021), du ing he COVID-19 pandemic, nei he con en-
ional no uncon en ional mone a y policies had signi ican e ec s on all ou inancial
ma ke s: go e nmen bonds, s ocks, exchange a es, and c edi de aul swaps. Howe e ,
uncon en ional mone a y policies we e sligh ly mo e e ec i e han con en ional policies,
as hey had some impac on he s ock and exchange a e ma ke s. On he o he hand, he
unce ain y e ec s o COVID-19 a e much s onge , a ec ing agg ega e demand, p ices,
he exchange a e, and he deg ee o ade openness, while complica ing mone a y policy
in e en ions. In e ms o egula ing demand and cu bing in la ion, simula ions conduc ed
o assess mone a y policy esponses indica e ha such policies a e ine ec i e and would
ha e no e ec o a leas 24 mon hs (And yushin 2020).
Exis ing esea ch on mone a y policy p ima ily ocuses on assessing i s e ec i eness by
examining i s impac on s ock ma ke s in a ious egions, including No h Ame ica, A ica,
Asia, and Eu ope. The e o e, he e is a po en ial esea ch gap in conduc ing a compa a i e
analysis o he e ec i eness o uncon en ional mone a y policy measu es ac oss a ious
egions o coun ies in mi iga ing he economic impac o pandemics, as well as examining
he b oade implica ions o di e en mone a y policy s a egies on key mac oeconomic
a iables such as GDP g ow h, in la ion a es, and unemploymen a es du ing such c ises.
Mo eo e , none o hese s udies ha e add essed he in luence o COVID-19-induced in e es
a e unce ain y on he ansmission o mone a y policy in OECD coun ies. (Phan and
Na ayan 2020). Consequen ly, his s udy aims o b idge his gap by sc u inizing he impac
o mone a y policy measu es unde aken by OECD coun ies on he mac oeconomy du ing
bo h he COVID-19 e a and he subsequen pos -COVID pe iod. The insigh s ga ne ed om
Economies 2024,12, 154 6 o 17
his in es iga ion a e in ended o se e as a guiding amewo k o e ec i ely add essing
u u e pandemics o economic shocks o a simila na u e.
4. Da a and Me hodology
4.1. Da a Collec ion
This empi ical analysis elies on an ex ensi e da abase a he coun y le el ha com-
bines in o ma ion on mone a y policy measu es and mac oeconomic a iables, as discussed
in Table 1. In pa icula , GDP g ow h a e se es as a p oxy o economic g ow h, while
he consume p ice index is used as a p oxy o in la ion a e. In bo h equa ions, eal GDP
g ow h is compu ed by calcula ing he mon hly yea -on-yea pe cen age g ow h a es. The
in la ion a e a iable is de i ed om he yea -on-yea pe cen age change in he consume
p ice index (CPI). Da a we e ex ac ed om a ious sou ces, including he In e na ional
Mone a y Fund’s (IMF) mac oeconomic and inancial da a, he O ganisa ion o Economic
Co-ope a ion and De elopmen (OECD), and he WHO’s Co ona i us da a.
Table 1. B ie discussion abou selec ed a iables.
Va iable Name Desc ip ion Sou ce
G oss Domes ic P oduc
G ow h Ra e
G oss domes ic p oduc
g ow h–expendi u e app oach
Wo ld Bank: Wo ld De elopmen Indica o s, Ou
Wo ld in Da a
Unemploymen Unemploymen , o al (% o o al
labo o ce)
Wo ld Bank: Wo ld De elopmen Indica o s, Ou
Wo ld in Da a
In e es Ra e Mone a y policy- ela ed in e es a e In e na ional Financial S a is ics (IFS)
Exchange Ra e The ela i e p ice o cu ency exp essed
in e ms o USD
In e na ional Financial S a is ics (IFS)—Cu ency
exchange a es, mon hly a e age
Economic Unce ain y Wo ld Unce ain y Index In e na ional Mone a y Fund (IMF)
mac oeconomic and inancial da a
G oss Fixed Capi al Fo ma ion G oss ixed capi al o ma ion as a
pe cen age o GDP OECD S a is ics
Go e nmen Expendi u e To al go e nmen expendi u e as a
pe cen age o GDP OECD S a is ics
Consume P ice Index
Consume p ice index pe cen age change
in he same pe iod o he p e ious yea OECD S a is ics
4.2. Sample Selec ion
The O ganisa ion o Economic Co-ope a ion and De elopmen , abb e ia ed as OECD,
is an in e na ional o ganiza ion o 38 coun ies commi ed o democ acy and he ma -
ke economy. We included all 33 coun ies based on he a ailabili y o da a. The s udy
included Aus alia, Aus ia, Belgium, Canada, he Czech Republic, Denma k, Finland,
F ance, G eece, Hunga y, Iceland, I eland, I aly, Ko ea, Mexico, he Ne he lands, New
Zealand, No way, Poland, Po ugal, he Slo ak Republic, Spain, Swi ze land, Tü kiye,
he Uni ed Kingdom, Uni ed S a es, A gen ina, B azil, Chile, Indonesia, Is ael, Slo enia
and Sou h A ica. These coun ies ep esen a di e se ange o economic s uc u es, le els
o de elopmen , and policy amewo ks, making hem a aluable sample o analyzing
mac oeconomic ends and policy esponses. By including da a om a b oad ange o
OECD coun ies, he s udy aims o cap u e di e se expe iences and a ia ions in policy
esponses o he COVID-19 pandemic ac oss di e en egions and economic con ex s. The
s udy’s ime ame u ilizes o nigh ly da a, de i ed om he OECD s a is ics da abase,
spanning om Janua y 2020 o Decembe 2023. Qua e ly da a was con e ed o a o -
nigh ly basis using EViews so wa e.
Economies 2024,12, 154 7 o 17
4.3. Me hodology
The empi ical li e a u e has p ima ily ocused on h ee key aspec s: he impac o in-
e es a es on money ma ke s hough mone a y policy, and hei e ec s on mac oeconomic
a iables such as GDP g ow h, in la ion and unemploymen .
This s udy employs a balanced panel da ase and a panel ARDL model o analyze he
ela ionship be ween key mac oeconomic policy a ge s. This model enables he di e en-
ia ion be ween sho - e m and long- e m e ec s. In o he wo ds, i makes i possible o
examine how a iables adjus owa d sho - e m and long- e m equilib ium condi ions.
The ARDL model allows in e sec ion poin s, sho - e m coe icien s, and e o a iances
o change eely be ween g oups bu keeps he long- e m coe icien s he same. The PMG
(Pooled Mean G oup) es ima o enables us o in es iga e long- e m homogenei y wi hou
imposing homogenei y o pa ame e s in he sho e m (Pesa an e al. 1999).
The conside ed ime pe iod is su icien o ob ain meaning ul esul s because he
ARDL app oach is sui able o gene a ing bo h sho - un and long- un elas ici ies om a
small sample size (Duasa 2007;Na ayan 2004).
As pe he heo y o he mone a y policy ansmission mechanism, mul iple channels
exis o elucida e he impac o mone a y policy on eal sec o s o on o e all economic
p og ess (P abheesh and Kuma 2021). These channels encompass mechanisms ha a e
pe cei ed o ope a e ia he in luence exe ed by cen al bank mone a y policy ins umen s
including, bu no limi ed o, he in e es a e, c edi supply, exchange a e, and expec a-
ions (Chundakkadan and Sasidha an 2020). The e o e, he model examines he impac
o con en ional mone a y policy, demand and supply shocks, in la ion, and sho - e m
g ow h dynamics.
By sepa a ely accoun ing o he GDP g ow h, in la ion and unemploymen , he
s udy disen angles hese ac o s om pu e supply and demand shocks, espec i ely. This
sepa a ion allows o a mo e p ecise analysis o hei indi idual e ec s wi hin he s uc u al
heo e ical amewo k.
Yi =β0+β1 i +β2ki +β3exei +Xi +ε (1)
Yi =β0+β1 i +β2ki +β3exei +β4( xkxCOVIDDum)+Xi +ε (2)
whe e Y
i
indica es a dependen a iable, whe e i deno es g oss domes ic p oduc g ow h,
in la ion, and he unemploymen a e.
β0
is he in e cep ; deno es ime, ideno es coun y
and
ε
s ands o an e o e m. Likewise, “ ” deno es he in e es a e, “k” s ands o
unce ain y measu ed by a ola ili y index (i is implied ola ili y as measu ed by he
VIX index can be in e p e ed as he ma ke ’s expec a ion o isk) and “exe” s ands o
exchange a e.
To cap u e mone a y shocks by inco po a ing bo h he in e es a e and in la ion a e,
he s udy employs he abo e model by eplacing he dependen a iable (
In i
) wi h he
in la ion a e (Equa ion (2)).
Fu he , in la ion is p oxied by he consume p ice index, in e es a es a e p oxied by
he lending a e and exchange a es deno e he alue o he coun y’s cu ency used o
con e sion o he US dolla . To comp ehensi ely analyze he ac ual impac , he undamen al
Equa ion (2) is augmen ed wi h wo addi ional a iables: cyclical unemploymen (unp),
deno ing he dispa i y be ween unemploymen and he na u al a e, and expec ed in la ion
(In _Ex) as con ol a iables.
Fu he , o iden i y sho - e m agg ega e supply changes, he s udy uses a hi d
equa ion by eplacing he dependen a iable
(unpi )
wi h he cyclical unemploymen a e.
In o de o accu a ely asce ain he eal impac , he equa ion inco po a es GDP g ow h and
he in la ion a e as con ol a iables.
Examining he impac o COVID-19 unce ain y on mone a y policy e ec i eness was
cap u ed by he iple in e ac ion e m ( *k*COVID_Dum), whe e COVID_Dum s ands o
a dummy a iable ha akes he alue o 1 o he COVID-19 pandemic pe iod and 0 o
o he pe iods. All a iables in he models a e exp essed in loga i hmic o m.
Economies 2024,12, 154 8 o 17
Fi s ly, he s udy examines c oss-sec ional dependency (CD) h ough he use o LM
es s, namely hose by Pesa an e al. (2004) and B eusch-Pagan es . These es s a e
pe o med o coun e ac panel da a issues and ensu e he obus ness and consis ency o
he es ima o s (Pesa an e al. 2004).
In addi ion, he s udy pe o ms s a iona y es s o bo h dependen and independen
a iables using uni oo es s. Gene ally, an augmen ed Dickey–Fulle es is conduc ed o
iden i y non-s a iona i y in ime se ies da a. The panel uni oo es makes i possible o
in es iga e he mean e e sion in he panel. I is essen ial o iden i y he le el o in eg a ion
among he a iables, o pu sue ime se ies-based OLS eg ession and o a oid spu ious
eg ession models. Nex , op imal lag selec ions using he un es ic ed model and an
in o ma ion c i e ion we e used o decide he choice o lags o each g oup pe a iables.
Then, he panel coin eg a ion es was used o de e mine he possibili y o es ablishing a
long- un equilib ium ela ionship be ween he a iables. The de ia ion o he sys em om
equilib ium a any gi en poin is e e ed o as he equilib ium e o . The Ped oni and
Kao es s a e based on Engle and G ange ’s (1987) wo-s ep ( esidual-based) coin eg a ion
es s. The Engle and G ange (1987) coin eg a ion es is based on an examina ion o he
esiduals, o check whe he a spu ious eg ession is pe o med using I(1) a iables. I
he a iables a e coin eg a ed hen he esiduals should be I(0). On he o he hand, i he
a iables a e no coin eg a ed hen he esiduals will be I(1). Ped oni (1999,2004) and Kao
(1999) ex ended he Engle-G ange amewo k o es panel da a. This pape employed he
Ped oni (Engle–G ange -based) and Kao esidual coin eg a ion es s o assess he easibili y
o p oducing a panel ARDL model. Finally, he s udy uses he Hausman es o indica e he
null hypo hesis o homogenei y based on he compa ison be ween he mean g oup (MG),
and he pooled mean g oup (PMG) es ima o s.
The es ing o he ARDL app oach consis s o wo s eps. The i s s ep is o check he
exis ence o a long- un coin eg a ion ela ionship among he a iables. I coin eg a ion
is es ablished, he second s ep is o es ima e he long- and sho - un coe icien s. I he
coin eg a ion is ejec ed, he second s ep con e ges o he es ima ion o sho - un coe i-
cien s only. Then, as ARDL assumes no se ial co ela ion, an app op ia e lag leng h (m)
should be conside ed. The s udy es ima es he ARDL model based on Akaike’s in o ma ion
c i e ion (AIC).
As a obus ness es , his s udy uses he panel ARDL pooled mean g oup (PMG)
me hod as i allows cons an e m, e o a iance, and sho - un pa ame e s o a y among
panel coun ies. Howe e , i assumes ha he coe icien s o he long- un ela ionship
a e cons an ac oss coun ies. The PMG es ima o conside s bo h pooling due o he
homogenei y cons ain s on he long- un coe icien s and a e aging ac oss coun ies o
ob ain he means o he es ima ed alues o he e o co ec ion coe icien s and sho - un
coe icien s o he model.
Due o i s inco po a ion o bo h pooling and a e aging s a egies, his model ou pe -
o ms dynamic o dina y leas squa es and comple ely modi ied leas squa es me hods.
Fu he , his panel eg ession can be exp essed using he ARDL (l and g) echnique, acco d-
ing o Pesa an e al. (1999), whe e “l” is he lag o he dependen a iable and “g” is he lag o
he eg esso s. This can be exp essed ma hema ically as ollows:
(Pesa an e al. 1999, #159)
Yi=∑l−1
j=1αijβij,−j+∑g−1
j=0µijXi,−J+ρi+εi (3)
In he gi en con ex , whe e “i” ep esen s he numbe o coun ies and “ ” deno es
he pe iod, he ec o “Y
” consis s o dependen a iables, including GDP g ow h a e,
in la ion a e, and unemploymen a e, ep esen ed as a (k
×
1) ec o . Meanwhile, X
i
is a
ma ix o explana o y a iables, wi h an o de o (T
×
k), encompassing a iables such as
in e es a e, unce ain y a e, exchange a e, and an in e ac ion e m be ween in e es a e
and unce ain y index, and dummy a iables. Addi ionally, he a iable
ρi
ep esen s ixed
e ec s accoun ing o coun y speci ic cha ac e is ics, while
εi
is an e o e m, cap u ing
unexplained a ia ions in he model.
Economies 2024,12, 154 15 o 17
Au ho Con ibu ions: Concep ualiza ion, I.W.R., R.K. and M.M.R.; me hodology, I.W.R.; so wa e,
I.W.R.; alida ion, R.K. and M.M.R.; o mal analysis, I.W.R.; w i ing—o iginal d a p epa a ion I.W.R.;
w i ing— e iew and edi ing R.K. and M.M.R. All au ho s ha e ead and ag eed o he published
e sion o he manusc ip .
Funding: The e we e no sou ces o unding used o p epa e his s udy.
Ins i u ional Re iew Boa d S a emen : No applicable.
In o med Consen S a emen : No applicable.
Da a A ailabili y S a emen : The da a ha suppo he indings o his s udy a e a ailable om he
websi es o he In e na ional Mone a y Fund, he Aus alian Bu eau o S a is ics and he Aus alian
Ins i u e o Heal h and Wel a e.
Con lic s o In e es : The au ho s decla e no con lic o in e es .
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