Applying historical estimations of policy responses during the Asian and global financial crises to the covid-19 economy
Date
2021-01-17
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Abstract
In early 2020, the COVID-19 pandemic began spreading around the world causing
massive health and socio-economic implications. In the Philippines, because of the extensive
lockdowns and overall lax response at the onset of the pandemic, the country has experienced
consecutive quarters of negative growth in 2020. Such economic downturn had not been seen
since the Asian Financial Crisis (AFC) and Global Financial Crisis (GFC), where the country
had been cited to be one of the more economically resilient nations at those times. Noting such
resilience, examining the policy responses implemented during the AFC and GFC may lead to
pragmatic learnings one may use to address the COVID-19 economy. To do such, we apply a
5-dimensional vector autoregression (VAR) model as a policy tool to measure the impact of
the different fiscal and monetary policies used to address the shocks attributed to the AFC and
GFC. After which, we employ a VAR model to forecast different macroeconomic indicators
given the COVID-19 context, and use learnings from the AFC and GFC for possible policy
recommendations. Our results show that in times of crises, the impact of monetary policy is
evident almost immediately after the period of implementation, with money supply exhibiting
a negative relationship with GDP in the short-run, while the effects of fiscal policies manifest
themselves more in the long-run. These insights are then used to propose policy
recommendations to address the macroeconomic issues that have risen from the COVID-19
pandemic.