You are here: Home Knowledge Base Monetary Policy - Lessons Learned from the Crisis and the Post-Crisis Period
Symposium 2015

Monetary Policy - Lessons Learned from the Crisis and the Post-Crisis Period

The Challenge

With the onset of the Financial Crisis 2008 many central banks worldwide considerably eased their monetary policies. Some central banks, like the Federal Reserve, the European Central Bank, and the Bank of England, quickly reached the zero-lower-bound on nominal interest rates; these central banks then started conducting extraordinary measures like quantitative easing and forward guidance. There is some consensus that this massive monetary stimulus in the first, ‘acute’, phase of the crisis was largely appropriate, preventing a second Great Depression. However, since then, discussion has turned toward how long monetary policy should remain highly expansionary, because of doubts about the effectiveness of expansionary monetary policy in the aftermath of banking crises. Moreover, expansionary monetary policy over a long period of time might be associated with adverse side effects such as financial instability, asset price bubbles, slower structural adjustment, distorted investment decisions, and inflation.

Important questions that have to be answered include: How effective is monetary policy during and after crises? How important are the potential risks which may result from extended periods of expansionary monetary policy? Are financial crises caused by structural problems that are beyond the scope of monetary policy? Or, do they represent cyclical downturns that can indeed be eased by monetary policy? If monetary policy can have significant side effects, should central banks take these risks more seriously? Should they, for instance, interpret their mandates less strictly by focusing greater attention on medium-run developments (i.e. beyond two years)? Should they allow for moderate deviations from their explicit or implicit inflation targets?

This session is organized by Nils Jannsen and Maik Wolters, Kiel Institute for the World Economy. Please check out the tabs below for additional facts and information.

    Solutions

    Solution
    Symposium 2015

    The Age of Financial Repression

    The Age of Financial Repression

    The Age of Financial Repression

    Solution
    Symposium 2015

    More Flexible Inflation Targeting and Greater Emphasis on Financial Stability

    More Flexible Inflation Targeting and Greater Emphasis on Financial Stability

    More Flexible Inflation Targeting and Greater Emphasis on Financial Stability

    Background Paper

    Background Paper
    Symposium 2015

    Monetary policy – lessons learned from the crisis and the post-crisis period

    Polity, Academia, Business, Civil Society

    Virtual Library

    Virtual Library File
    Symposium 2015

    Monetary policy struggles to normalise (84. BIS Annual Report, 2013/2014, Chapter V)

    This chapter of the 84th BIS Annual Report gives an overview of the current stance of monetary policy and current issues in monetary policy from a global perspective.

    This chapter of the 84th BIS Annual Report gives an overview of the current stance of monetary policy and current issues in monetary policy from a global perspective.

    Virtual Library File
    Symposium 2015

    Ultra Easy Monetary Policy and the Law of Unintended Consequences

    This paper comprehensively discusses the effectiveness and unintended consequences of ultra-ease monetary policy. It argues that monetary policy currently could be less effective because important tra ...

    This paper comprehensively discusses the effectiveness and unintended consequences of ultra-ease monetary policy. It argues that monetary policy currently could be less effective because important transmission channels may be at least partially blocked. Moreover, it argues that ultra-ease monetary policy can eventually threaten the health of financial markets and the “independence” of central banks and can encourage imprudent behavior of governments. It may also trigger capital misallocation.

    Virtual Library File
    Symposium 2015

    Monetary Policy and Financial Stability

    In this speech, Janet Yellen shares her views on monetary policy and financial stability. She argues that monetary policy faces significant limitations in promoting financial stability. Its effects on ...

    In this speech, Janet Yellen shares her views on monetary policy and financial stability. She argues that monetary policy faces significant limitations in promoting financial stability. Its effects on financial vulnerabilities, such as excessive leverage and maturity transformation, are not well understood and are less direct than a regulatory or supervisory approach; in addition, efforts to promote financial stability through adjustments in interest rates would increase the volatility of inflation and employment. As a result, she concludes that a macroprudential approach to supervision and regulation needs to play the primary role. Such an approach should focus on "through the cycle" standards that increase the resilience of the financial system to adverse shocks and on efforts to ensure that the regulatory umbrella will cover previously uncovered systemically important institutions and activities. However, there may also be times when an adjustment in monetary policy may be appropriate to ameliorate emerging risks to financial stability. Because of this possibility, and because transparency enhances the effectiveness of monetary policy, it is crucial that policy-makers clearly communicate their views on the risks to financial stability and how such risks influence the appropriate monetary policy stance.

    Virtual Library File
    Symposium 2015

    Is inflation (or deflation) “always and everywhere” a monetary phenomenon?

    Masaaki Shirakawa, a former governor of the Bank Japan, lays out his views on monetary policy, price stability, and financial stability against the backdrop of the experiences the Bank of Japan made w ...

    Masaaki Shirakawa, a former governor of the Bank Japan, lays out his views on monetary policy, price stability, and financial stability against the backdrop of the experiences the Bank of Japan made with the financial crisis beginning in 1997. He argues that price stability is a medium- to long-run rather than a short-run concept. Moreover, he argues that monetary policy should take financial stability issues into account and that cooperation among various policy-makers as well as international cooperation is important to achieve price stability.

    Virtual Library File
    Symposium 2015

    Monetary policy in a downturn: Are financial crises special?

    This paper analyzes empirically the effectiveness of monetary policy during downturns that are associated with financial crises. It finds that (accommodative) monetary policy is less effective during ...

    This paper analyzes empirically the effectiveness of monetary policy during downturns that are associated with financial crises. It finds that (accommodative) monetary policy is less effective during a downturn if the downturn was associated with a financial crisis. Moreover, this paper shows that private sector deleveraging during a downturn helps to induce a stronger recovery.