Balance Sheet Analysis Techniques , financial markets are facing extreme difficulties. Almost all countries are struggling to maintain their economies as production comes to a halt due to restrictions, shortage of raw materials and the cost of keeping employees safe from the virus. This situation is further compounded by the fact that households are faced with rising costs due to higher food prices, the loss of wages and the emergence of other financial expenses.
Monetary policy is a key tool in alleviating these pressures. In normal times, monetary policymakers lower interest rates to boost economic activity by releasing monetary liquidity and increasing credit availability to firms and households. Hence, a positive monetary policy shock reduces inflationary and deflationary pressures by increasing aggregate demand and the output of the economy.
However, during unprecedented events and crises the transmission of monetary policies may be significantly disrupted. These unprecedented economic and financial events have the potential to change how monetary policies perform, which can in turn impact financial markets and the real economy.
The aim of this paper is to survey how the emergence and severity of the pandemic has impacted the transmission of monetary policy to financial markets, both during the pandemic and non-pandemic periods. Section 3.1 establishes the benchmark event-study model to investigate the influence of heterogeneous monetary policy coefficients on financial market indicators, and the robustness of the results is explored in Section 3.2. The findings indicate that the emergence and severity of the pandemic have partially weakened the transmission of monetary policy to financial markets.
