Measuring the effectiveness of US monetary policy during the COVID‐19 recession
| Published date | 01 July 2021 |
| Author | Martin Feldkircher,Florian Huber,Michael Pfarrhofer |
| Date | 01 July 2021 |
| DOI | http://doi.org/10.1111/sjpe.12275 |
Scott J Polit Econ . 2021;68:287–297. wileyonlinelibrary.com/journal/sjpe
|
287
© 2021 Scottish Ec onomic Society
Accepted: 3 Febr uary 2021
DOI: 10 .1111/sjpe.1 2275
ORIGINAL ARTICLE
Measuring the effectiveness of US monetary
policy during the COVID- 19 recession
Martin Feldkircher1 | Florian Huber2 | Michael Pfarrhofer2
1Vienna Schoo l of International Stu dies
(DA), Vienna, A ustria
2Universit y of Salzburg, Salzb urg, Austria
Correspondence
Martin Feld kircher, Vienna Sch ool of
Internation al Studies (DA), Vien na, Austria.
Email: martin.feldkircher@da-vienna.ac.at
Funding information
Austrian Sc ience Funds (FWF), G rant/
Award Number : ZK 35
Abstract
The COVID- 19 recession that star ted in March 2020 led to
an unprecedented de cline in economic ac tivity across th e
globe. To fight this recession, p olicy makers in central banks
engaged in expansion ary monetar y policy. This paper ask s
whether the measu res adopted by the US Feder al Reserve
(Fed) have been effec tive in boosting real activit y and calm-
ing financial market s. To measure these effec ts at high
frequencies, we pr opose a novel mixed frequ ency vector
autoregressive (MF- VAR) m odel. This model al lows us to
combine weekly and m onthly information wit hin a unified
framework. Our m odel combines a set of mac roeconomic
aggregates such as industrial production, unemployment
rates, and inflation w ith high- f requency inform ation from
financial market s such as stock prices, interest rate spr eads,
and weekly informati on on the Fed's balance sheet size. The
latter set of high- frequenc y time series is used to d ynami-
cally interpolate t he monthly time seri es to obtain weekly
macroeconomic mea sures. We use this setup to simu late
counterfact uals in absence of monet ary stimulus . The re-
sults show that the mo netary expa nsion caused higher
output growth an d stock market returns , more favorable
long- term fina ncing conditions and a depreciation of th e US
dollar compared wit h a no- policy benchmark s cenario.
KEYWORDS
mixed frequency model, monetary policy effectiveness,
unconventional monetary policy
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