Pandemic and the Monetary Policy in the Global North How Far Has the Main Street Been Influenced?

ABSTRACT

During the COVID-19 pandemic, expansionary economic policies played an important role in reviving the floundering global economy. In this context, the present paper looks at the effectiveness of monetary policy in the global North in stimulating real economic activity. In an ultra-low interest rate regime, the traditional monetary policy ceases to be effective. Therefore, many developed country central banks adopted a slew of unconventional monetary policy tools to tackle the recession. This paper analyses the unconventional monetary policy tools pursued by the global North with special reference to the United States and argues that the transmission channels of unconventional monetary policy tools to increase effective demand are not always automatic and straightforward. There is strong evidence that while these expansionary measures may have helped during the initial crisis, their effectiveness in reviving sustained economic activity in the medium run is doubtful. On the other hand, there are routes through which increased liquidity created by unconventional monetary policy tools has ended up in the financial sector, thereby leading to an asset price inflation that may not have a net beneficial impact on the real economy. © 2022 Economic and Political Weekly. All rights reserved.