ABSTRACT
The chapter challenges the mainstream consensus concerning the money–inflation trade-off and the neutrality of money to present ways through which monetary policy exerts real effects on growth and employment in the long term. It then establishes additional channels through which monetary policy augurs credit to sectors that are crucial for long-term growth, employment creation and productivity augmentation. The chapter also analyses monetary policy in the context of developing countries during the economic shutdown, which put the financial sector under major strain. Finally, it discusses the particular fiscal–monetary policy combinations (known as fiscal–monetary policy mixes) that can reinforce long-term stability. In order to recover from the economic slowdown due to the COVID-19 crisis, the chapter determines that monetary policy should seek to ensure that financial conditions are sufficiently accommodative to incentivise high-capital investments and deficit-financed spending. The transmissions under such a context are driven by variations in wages and employment outcomes in the real economy.
