The Effectiveness of Hungarian Monetary Policy and the Issue of Inflation in the Wake of the COVID-19 Pandemic

Orosz Levente János (2022) The Effectiveness of Hungarian Monetary Policy and the Issue of Inflation in the Wake of the COVID-19 Pandemic. Pénzügyi és Számviteli Kar.

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Absztrakt (kivonat)

The thesis was inspired by the COVID-19 pandemic and the subsequent events that followed it regarding the global economy. In Hungary’s case, the country is experiencing high levels of inflation which is often attributed to the pandemic. The aim of the thesis was to evaluate the monetary policy conducted by Hungary since 2020 to see how effective they were in mitigating the turmoil caused by the pandemic, and how much are they responsible for the current inflation. The first chapter following the introducing sets out the theoretical framework for the dissertation, as it discusses what monetary policy is and what is the role of central banks. To fulfil their role of promoting price stability and economic growth, central banks conduct monetary policy using tools like open market operations, setting the bank rate, and the reserve requirements to be held by commercial banks at the central bank. Central banks can conduct either expansionary or contractionary policies based on the effect they would like to see in the economy. To decide it, they use targeting systems, most commonly inflation targeting. The chapter not only introduces and analyses these concepts, but also looks at their potential shortcomings and offers alternatives. For instance, the Chicago Plan which was proposed in the 1930s, as a form of full reserve banking. This is followed by a literature review on inflation. It examines the existing schools of thought, such as the monetarist, Keynesian, structuralist, or new classical. Then a variety of sources are used to find the common causes of inflation such as inflation expectations, international transmission, political instability which all occurred under COVID-19 too. To conclude the literature review, the effects of inflation are also analysed. While it may have some positives, such as reducing unemployment or creating growth, when it gets out of hand it leads to substantial increases in product and service prices, and a decrease in purchasing power, since wages take more time to increase. The fourth chapter looks into how the global economy had been affected by the pandemic. As in the initial part of the virus, lockdowns had been quite common, it led to the closing down of factories causing supply chain disruptions in areas like pharmaceuticals or electronic goods. Unemployment also increased and some industries like hospitality or entertainment were impacted a lot more than some others. The world was facing a recession and therefore governments and central banks started conducting expansionary fiscal and monetary policies. In case of central banks there were lots of asset purchasing programmes, decreasing interest rates to near-zero, and plenty of credit creation. The recession had been successfully avoided, although the scale of these expansionary policies meant that the aggregate demand had recovered much earlier than the supply. The combination of the still remaining shortages and the large amount of money created meant that prices started increasing and an inflation was underway. In case of Hungary, the responses by the Hungarian National Bank consisted of lowering the base rate, bond purchasing programmes, including both government and corporate, and lending programmes for small and medium enterprises. When inflation got out of the upper limit of their tolerated inflation target, the Hungarian Central Bank started phasing out their expansionary policies, roughly at the same time as the Federal Reserve or the European Central Bank. While this may absolve them from some of the blame, the Hungarian economy is more limited in terms of resources available, and less resilient compared to the United States, main members of the Euro Zone, or China for instance, which should have been considered when making excessive expansionary policies.

Intézmény

Budapesti Gazdasági Egyetem

Kar

Pénzügyi és Számviteli Kar

Tanszék

Pénzügy Tanszék

Tudományterület/tudományág

NEM RÉSZLETEZETT

Szak

Pénzügy és Számvitel

Mű típusa:	diplomadolgozat (NEM RÉSZLETEZETT)
Kulcsszavak:	infláció, jegybank, koronavírus-járvány (COVID-19), Magyarország, monetáris politika
SWORD Depositor:	Archive User
Felhasználói azonosító szám (ID):	Archive User
Rekord készítés dátuma:	2023. Ápr. 21. 09:51
Utolsó módosítás:	2023. Ápr. 21. 09:51

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