Money and Finance during the Pandemic and Beyond

With apologies to Gabriel García Márquez’s 1985 novel Love in the Time of Cholera, given the generic themes of most of the papers in this special issue, it could have perhaps been named, “Money, Banking and Finance in the Time of the Pandemic.” But, since the focus of a few of the papers is beyond the theme of the pandemic, we have refrained from aping Márquez.

In the first paper titled, “Priming Monetary Policy for the Pandemic,” Michael Debabrata Patra and Indranil Bhattacharyya take a ring-side view of the Indian monetary policy during the pandemic. Distinguishing between conventional and unconventional policy measures, Patra and Bhattacharyya provide an impact assessment of these monetary policy measures in terms of key macroeconomic and financial variables. In their extensive discussion on unconventional monetary policy, covering extended lending programmes, asset purchases, forward guidance, and liquidity rebalancing, they show that the Reserve Bank of India’s (RBI) monetary measures during the pandemic were accompanied by rising financial inclusion and digitalisation. All these measures together seemed to have contributed significantly to the turnaround in the Indian economy. Patra and Bhattacharyya trace the Indian monetary policy framework in terms of the celebrated new Keynesian construct comprising an aggregate demand curve, an aggregate supply function, and a central bank reaction function. Drawing upon a large body of empirical work done in the RBI, they conclude, “A one percentage point change in the real interest rate gap leads to a 0.21 percentage point change in the output gap” but note, “These estimates reveal a high degree of gradualism in policy reactions.” However, they make a cautionary note that the revival of private consumption and investment is still a “work in progress” and restoration of employment in the micro, small and medium enterprises (MSMEs) remains a formidable challenge.