Government finance by central banks and inflation expectations at the onset of the COVID pandemic

Abstract

ABSTRACT At the COVID pandemic’s onset, many central banks responded with unconventional monetary policy (UMP) programmes. In emerging and developing economies, various programmes included components of direct government financing (DGF). This article collects data on UMPs announced during 2020 and investigates how inflation expectations responded to different types of programmes, providing a measure of real-time public perceptions of the inflation risks associated with them. Programme announcements, including DGFs, did not lead to significant increases in inflation expectations. Possibly, the one-off nature of central banks’ COVID response was seen as credible in many countries, preventing an immediate de-anchoring of expectations.