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 started in March 2020 led to
an unprecedented decline in economic activity across the
globe. To fight this recession, p olicy makers in central banks
engaged in expansionary monetary policy. This paper asks
whether the measures adopted by the US Federal Reserve
(Fed) have been effec tive in boosting real activit y and calm-
ing financial markets. To measure these effects at high
frequencies, we propose a novel mixed frequency vector
autoregressive (MF- VAR) model. This model allows us to
combine weekly and monthly information within a unified
framework. Our model combines a set of macroeconomic
aggregates such as industrial production, unemployment
rates, and inflation with high- frequency information 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- frequency time series is used to dynami-
cally interpolate the monthly time series to obtain weekly
macroeconomic measures. We use this setup to simulate
counterfactuals in absence of monetary stimulus. The re-
sults show that the monetary expansion caused higher
output growth and 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
Get this document and AI-powered insights with a free trial of vLex and Vincent AI
Get Started for FreeStart Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting