Effects of COVID-19 on the economy: Central bank policies and measures

There has been an increase in the severity and frequency of natural disasters due to technological advances and increased urbanization. Disasters have more devastating consequences in developing countries and in relatively poorer groups. Inequalities and inadequate institutional structures cause disasters to occur more severely. Success in disaster management requires an approach based on reducing social inequalities and economic risks, and determined policies to eliminate individual/societal vulnerabilities. As of the date of writing this thesis, COVID-19, the last biological disaster that occurred has turned into a global disaster that resulted in major economic losses. Lockdowns and quarantine practices have caused a sudden halt in economic activities. The possible economic consequences of the measures affecting the labor market, supply chains and financial markets have been extensive and uncertain. The suddenness and speed of the economic disruption, the increases in market volatility and the environment of uncertainty have triggered an extraordinary response from central banks in terms of speed, scope and size. In order to evaluate the impact of COVID-19 on economic growth and welfare, it is important to understand the concept of economic growth and welfare. The dynamics of economic growth are numerous and complex. In order to understand the differences between countries, it is important to examine the history, culture, institutional and political structures of countries. Geography, integration, institutions and culture factors emphasize the areas that dominate the literature. The mutual interaction of factors and the causal relationships between them show that there are complex interactions between these factors. In the institutions hypothesis, institutions are at the center of the research and the role of property rights and the rule of law are highlighted. Inclusive economic institutions that are centralized and pluralistic in nature promote efficiency, productivity and prosperity. In a similar analogy, it can be thought that institutions play a critical role in combating the negative situations and disasters that countries face. This study investigates the economic and social impact of central bank activities during the pandemic period, the factors that determine central bank activity and the effectiveness of policies. Thus, it is hoped that reliable and valuable information will be provided to central banks in similar situations to create effective monetary policies and promote economic recovery. The data set for measuring policies was carried out on a data set consisting of ninety-one countries which covers approximately 97% of the world's income and three-quarters of the world's population. Monthly data from eighty-eight countries was used for the factors that determine the diversity of measures. The analysis of the effectiveness of measures was carried out using three-month panel data from fifty-two countries due to the limitations in the data set. The data period in all three analyses is between March 2020 and June 2021. In the study, an index was created to measure the diversity of policies implemented by central banks during the COVID-19 period. It is seen that countries with more equipped and independent central banks have established a comprehensive combat policy. The determinants of a comprehensive combat policy are the level of development, the proportion of the elderly population, the amount of GDP per capita, and the amount of public health expenditures. On the other hand, contrary to expectations, the variables of distance to the epicenter of the crisis, international trade openness and urbanization rate did not play a significant role. These results can be interpreted as a sign that the effect of institutions is more explanatory than geography, integration and culture factors in terms of the determinants of the response index. The main findings of the study are as follows: While COVID-19 has negative consequences for all economies, developing countries have been more affected by the pandemic. Central bank activity has reduced the pressure on inflation and had a positive effect on employment. In contrast, government policies have conflicting results. In addition, it would be appropriate to evaluate the interactive effect of the measures implemented and the pandemic together. With the spread of the pandemic, central bank activities have a negative effect on inflation, unemployment and output, and a positive effect on employment. In contrast, with the severity of the pandemic, central bank activities have a positive effect on inflation, employment and output, and a negative effect on unemployment. The success of the measures taken is closely related to country- and pandemic-specific factors. Therefore, each country should develop a strategy by taking into account its own characteristics and priorities. Key Words: Natural disaster, growth, institutions, COVID-19, monetary policy, Monetary Policy Response Index.