Policy Effectiveness in Mitigating Pandemic-Induced Macroeconomic Impacts: Evidence from Large Net Oil Importers of Asia

This article employs a two-economy model, which incorporates New Keynesian features, to examine the impact of a coronavirus disease (COVID-19)-induced supply shock on economic recovery in large net oil-importing Asian countries. It examines whether and to what extent monetary and fiscal policies are effective in mitigating such supply shock risks. Our calibrations and estimations reveal that a COVID-19-induced supply shock negatively impacted both the global and domestic economies alike and delayed their economic recovery. Specifically, shocks to total factor productivity and world output negatively affected domestic macroeconomic variables such as domestic output, inflation rate, interest rate, and government expenditure, among others. We show that monetary and fiscal policies efficiently mitigate the adverse effects arising from the supply shock.