An Optimal Monetary Policy in a Long- Run Coexistence with COVID-19

Bastanifar, Iman

doi:10.48308/jep.5.1.239

An Optimal Monetary Policy in a Long- Run Coexistence with COVID-19

Document Type : Original Article

Author

Iman Bastanifar

Assistant Professor of Economics, Faculty of Economics and Administrative Sciences, University of Isfahan, Isfahan, Iran

10.48308/jep.5.1.239

Abstract

With the advent of COVID-19 health authorities of most Top high GDP countries dominated the economy. A policy response to COVID-19 pandemic, was the lockdown policy. I show that this discretionary biological health policy in a new shopping time model by dynamic programming technique, decrease the value of transaction time saved by holding additional money and increases the real balance of money during COVID-19. An optimal monetary policy rule during COVID-19 is a rule, based on that, the growth rate of banking discount rate equals the variation of case fatality risk (CFR). This rule is computed as an optimal monetary policy rule for each month of the top 15 GDP countries of the world in 2020. The results show that the rate of rapid and hasty reduction of the announced discount rates during the COVID-19 period were not optimal and would be one of the reasons for the occurrence of inflation and the failure of the inflation target policy in recent years. Therefore, I recommend a rule to determine an optimal monetary policy when our world experiences a biological shock.

Keywords

References

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