The Role of Monetary Instruments to Financial Market in the Pandemic Covid Era

Purpose: This paper aimed to analyze the financial market reaction towards monetary instruments during the pandemic covid era. We employ Malaysian data. Methodology: We develop the financial market into three models, namely the interbank money market, bond market, and stock market. We used ordinary least squares as the research methodology. The type of data used is a monthly time series from January 31, 2019, to June 30, 2021. Findings: The study found that the dynamics of monetary policy through policy interest rates and reserve requirements have a significant effect on financial markets in Malaysia, particularly on the interbank money market and bond market. Meanwhile, when it comes to the COVID-19 pandemic, government bond yields are influenced by the implementation of the minimum reserve policy. Originality/Value: We focus on dynamic monetary instruments in Malaysia. The main instruments are the overnight policy rate and reserve requirement ratio. We employ the linkage of covid and monetary instruments as an independent variable to capture the effect of monetary policy in the pandemic covid era.