Impact of the COVID-19 monetary policy toolkit in the Dominican Republic

Resumen

As most central banks in both advanced and emerging markets, the Central Bank of the Dominican Republic (CBDR) reacted swiftly in response to the outbreak of the COVID-19 pandemic, where conventional interest rate reductions were accompanied by a set of nonconventional expansive monetary and financial measures. In this paper, we estimate a semi-structural macroeconomic model for a small-open economy with a financial block that captures the non-conventional set of instruments. Up to our knowledge, this is the first paper to assess the impact of the monetary policy measures implemented in response
to the COVID-19 pandemic in the Dominican economy. Main results indicate that the combination of monetary policy instruments played an important role in mitigating the effects of the pandemic in the Dominican Republic. Moreover, given the lags with which the monetary policy transmission mechanism operates, the use of these complementary tools contributed to a more potent and expedite impact of monetary policy that facilitated a rapid recovery of the economy in the course of 2020 and a continued economic recovery during 2021.