Evaluating Monetary Policy Effectiveness Under Economic Shocks: Evidence From COVID-19 Era Studies

Abstract

The COVID-19 pandemic generated an unprecedented global economic shock, simultaneously disrupting supply, demand, financial markets, international trade, and employment. In response, central banks implemented extraordinary monetary policy measures, including policy-rate reductions, quantitative easing, liquidity provision, targeted refinancing, forward guidance, and credit-support facilities. However, evidence regarding the effectiveness of these interventions remains heterogeneous across countries, policy instruments, and economic outcomes. This study conducts a meta-analysis of empirical research published between 2020 and 2023 to quantitatively assess the effectiveness of monetary policy during the COVID-19 pandemic and the subsequent recovery period, interpreting the accumulated evidence from a 2026 perspective. The analysis synthesizes 42 empirical studies comprising 187 standardized effect sizes from advanced and emerging economies. A random-effects model is employed to estimate pooled effects, while heterogeneity, subgroup differences, and potential publication bias are examined. The findings indicate a statistically significant positive overall effect of monetary policy interventions, with a pooled Hedges’ g of 0.28 (95% CI: 0.19–0.37; p<0.01). Substantial heterogeneity is observed across studies (I²=76.8%), indicating that policy effectiveness varied according to economic and institutional conditions. Unconventional monetary policy instruments, including quantitative easing and liquidity measures, demonstrate a stronger effect (g=0.34) than conventional rate cuts (g=0.19). Monetary policy effects are also stronger in advanced economies (g=0.31) than in emerging economies (g=0.22). Egger’s test indicates no statistically significant evidence of publication bias (p=0.14). The findings suggest that monetary policy played an important stabilizing role during the pandemic, particularly through unconventional instruments, although its effectiveness was context-dependent. The study highlights the importance of flexible, credible, and appropriately calibrated monetary policy frameworks for managing future systemic economic shocks while balancing economic stabilisation, financial stability, and inflation control.