The Covid-19 pandemic cast the interaction between fiscal and monetary policy in a new light. The pandemic-induced recession made greater demands on both fiscal and monetary policy, triggered the need for closer domestic policy co-ordination, and led to a greater use of central bank balance sheets. This note discusses these issues, drawing on evidence from a survey of emerging market economy (EME) central banks. It first reviews the interaction between monetary and fiscal policy during the first phase of the Covid-19. It then explores the main factors that enabled EMEs to respond in a strongly countercyclical way to the pandemic shock. Finally, it discusses mediumterm policy challenges given that high private and public sector debt levels will need to gradually decline and buffers will have to be built up as the economy returns to normality.
