Identifying efficient policy mix under different targeting regimes: A tale of two crises

We examine the influence of demand shock, supply shock and the monetary policy shock on macroeconomic variables using the New Keynesian Dynamic Stochastic General Equilibrium framework. Our study tries to identify the efficient monetary policy mix as an antidote to the prevailing economic fragilities that originated due to the COVID-19 pandemic and geopolitical conflict in case of India and China. Under both simulated and Bayesian analysis, our findings revealed the inflationary effect of demand and supply shock with a target-oriented monetary policy under sticky prices as the efficient policy tool to counter these effects. The macroeconomic projections depicted the favourable influence of output due to active intervention of target-oriented monetary policy in both these economies.

Testing policy effectiveness during COVID-19: An NK-DSGE analysis.

We examine the effectiveness of fiscal and monetary policy in mitigating the impact of COVID-19 in India using the NK-DSGE framework. In terms of policy effectiveness, our findings imply that expansionary monetary policy is effective in reviving economic growth both from the demand side and supply side. In contrast, expansionary fiscal policy is effective only from the supply side. Our findings recommend the implementation of optimal policy mix in a coordinated and staggered framework for effective mitigation of ill-effects of the COVID-19, such as reviving employment and capacity utilization to its pre-pandemic level with minimal inflationary effects.

Has COVID-19 intensified the oil price-exchange rate nexus?

This paper extends the existing empirical literature by investigating whether the COVID-19 crisis has strengthened the dynamic relationships between oil price and exchange rate. We find significant breaks in the relationships wherein a common break is detected around the COVID-19 outbreak period. Of note, the interactions between the two markets intensified since the outbreak of the COVID-19 pandemic. Overall, our findings imply that the investors and policymakers are taking stock of the valuable information from the unanticipated occurrence of the COVID-19 pandemic. Thus, diversification in the form of portfolio switches towards foreign currency-denominated assets may be effective in the case of a depreciation of the domestic currency.

Time-varying dependence between stock markets and oil prices during COVID-19: The case of net oil-exporting countries

This article provides an empirical investigation of the time-varying dependence between oil prices and stock markets in the top ten net oil-exporting countries. Using daily data focusing on COVID-19 period, we implement the DCC-GARCH to identify the dynamic dependence. Then, we apply structural break techniques to detect the shift in the dependence structure. We find that there exists a positive time-varying dependence between oil returns and stock returns during the ongoing COVID-19 pandemic wherein the breakpoints mostly coincided with the emergence of oil price war and global stock market crash. Overall, results imply that declining oil prices lead to a fall in stock returns due to lower future earnings for oil companies, exhibiting a signal of reduction in aggregate demand and economic activity in oil-exporting countries. Thus, the high positive co-movement may have ill-effects on portfolio diversification, as the latter will be less effective if the asset returns are highly correlated.