What Role for Central Banks?
(2020) EKHS11 20201Department of Economic History
- Abstract
- After the Global Financial Crisis of 2008 (GFC) monetary policy and central banking have changed remarkably. Central banks responded to the crisis with extraordinary measures to preserve financial stability but were also largely left alone to fight the economic slow-down and deflationary forces initiated by the crisis. The role of the central bank has expanded enormously and 'unconventional monetary policy' is making its way into the mainstream. The central bank response to the Covid-19 Crisis in early 2020 confirms this as central banks around the world have launched new extensive programmes of quantitative easing. This paper explores the nature of these unconventional monetary policies and examines how they change the political... (More)
- After the Global Financial Crisis of 2008 (GFC) monetary policy and central banking have changed remarkably. Central banks responded to the crisis with extraordinary measures to preserve financial stability but were also largely left alone to fight the economic slow-down and deflationary forces initiated by the crisis. The role of the central bank has expanded enormously and 'unconventional monetary policy' is making its way into the mainstream. The central bank response to the Covid-19 Crisis in early 2020 confirms this as central banks around the world have launched new extensive programmes of quantitative easing. This paper explores the nature of these unconventional monetary policies and examines how they change the political importance of central banks. The policy assignment implemented in the decades prior to the GFC placed monetary policy outside the realm of politics. Unconventional monetary policies have compromised this separation of fiscal and monetary policies. Although quantitative easing might work to avoid collapse and provide financial stability temporarily, the prevention of collapse should not be the primary concern of central banks over long periods. The scope, magnitude and longevity of unconventional policy programmes is an indication of structural problems that cannot be resolved with monetary firepower alone. Additionally, the paper analyses the recent changes in the strategic interactions between the monetary authority and the fiscal authority in major advanced economies. With governments committed to fiscal consolidation or outright austerity and the threat of inflation nowhere in sight, the underlying assumptions of the institutional structure of the operationally independent and inflation-targeting central bank do not hold. With central banks obligated to act, governments might be structurally prone to push the boundaries of monetary policy while postponing necessary reform. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/9021350
- author
- Vigfússon, Bjarki LU
- supervisor
- organization
- course
- EKHS11 20201
- year
- 2020
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- Central banks, unconventional monetary policy, quantitative easing, central bank independence, fiscal policy
- language
- English
- id
- 9021350
- date added to LUP
- 2020-07-03 11:57:22
- date last changed
- 2020-07-03 11:57:22
@misc{9021350,
abstract = {{After the Global Financial Crisis of 2008 (GFC) monetary policy and central banking have changed remarkably. Central banks responded to the crisis with extraordinary measures to preserve financial stability but were also largely left alone to fight the economic slow-down and deflationary forces initiated by the crisis. The role of the central bank has expanded enormously and 'unconventional monetary policy' is making its way into the mainstream. The central bank response to the Covid-19 Crisis in early 2020 confirms this as central banks around the world have launched new extensive programmes of quantitative easing. This paper explores the nature of these unconventional monetary policies and examines how they change the political importance of central banks. The policy assignment implemented in the decades prior to the GFC placed monetary policy outside the realm of politics. Unconventional monetary policies have compromised this separation of fiscal and monetary policies. Although quantitative easing might work to avoid collapse and provide financial stability temporarily, the prevention of collapse should not be the primary concern of central banks over long periods. The scope, magnitude and longevity of unconventional policy programmes is an indication of structural problems that cannot be resolved with monetary firepower alone. Additionally, the paper analyses the recent changes in the strategic interactions between the monetary authority and the fiscal authority in major advanced economies. With governments committed to fiscal consolidation or outright austerity and the threat of inflation nowhere in sight, the underlying assumptions of the institutional structure of the operationally independent and inflation-targeting central bank do not hold. With central banks obligated to act, governments might be structurally prone to push the boundaries of monetary policy while postponing necessary reform.}},
author = {{Vigfússon, Bjarki}},
language = {{eng}},
note = {{Student Paper}},
title = {{What Role for Central Banks?}},
year = {{2020}},
}