The Impact of Monetary Policy on Financial Markets in The Context of The Covid-19 Pandemic: Empirical Evidence from ASEAN Countries

Abstract

This study aims to answer the question of how monetary policy in the context of the Covid-19 pandemic affects the financial market of Asean countries. Our empirical evidences strongly indicate that monetary policies implemented during the epidemic outbreak as well as social distancing measures have more profound effects on the financial markets of these nations. In addition, fiscal policies have partly adopted market expectations. Accordingly, the monetary policy has significant positive effect besides the fiscal policy shows similar result but at a weaker level. In addition, the severity of the disease spread also somewhat weakens the transmission of monetary policy to the foreign exchange, bond and stock markets, at least for unconventional policy. Therefore, the research results support the view that it is necessary to expand flexible monetary policies in tandem with fiscal support measures at least until the end of 2021. We believe that the study is useful for regulators in management of banking operations and monetary policy orientation.