Blog posts tagged by tag: Banking Sector
A year ago I wrote a series of articles on monetary policy action by central banks in recent decades. I began by summarizing the state of affairs of a global economy in which central banks have acquired an enormous role so much so that their continuous interventions, first conventional and then "extraordinary", have become an everyday economic reality. While their role in managing the global financial crisis was key as they avoided a collapse in the liquidity of the system that would have undoubtedly aggravated the depression, their effectiveness in facilitating a return to growth, job creation, global deleveraging, financial sector risk reduction, sustainability of public finances and structural imbalances in their respective states is doubtful.
Central bankers do not have an easy job at the best of times. They must work in a world of constant yet random shocks, imperfect models and political pressures, while trying to hit a moving inflationary target six months to a year down the line. All of this while working with a rather limited arsenal. Since 2008, central banks (CB) have used the interest rate as the primary tool to influence economic policy. Interest rates have approached, or in some cases even exceeded, the zero lower bound, with no sign of definite recovery. Drastic times call for drastic measures and central bankers have resorted to so-called unconventional monetary policy in order to provide additional monetary accommodation as a last resort. One such unconventional method termed “forward guidance” has been employed in one form or another by CBs around the world.
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