Monetary policy responses to supply shocks and demand shocks

Abstract

Economic shocks, mainly COVID-19, have had a large impact on the global economy, such as the recent extremely high inflation rate in the United States. The monetary policy of the central bank plays a great role in stabilizing the economy. This paper mainly discusses the specific monetary policies implemented by the central bank when the macro economy meets the unexpected shocks and because one of the most important assumptions in this paper is that when the central bank makes decisions , the economy along the “balanced growth path”, the economy discussed in this paper is a smoothly developing developed country, such as the United States, rather than China.