Should investors rely on central bank asset purchases to backstop markets?

Colin Ellis
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Colin Ellis: Hult International Business School, UK

Journal of Risk Management in Financial Institutions, 2023, vol. 16, issue 1, 13-20

Abstract: During the global financial crisis, central banks in advanced economies cut policy rates to near zero, and then provided further stimulus via balance sheet expansion. In many instances this took the form of quantitative easing — central banks creating new money with which to purchase securities. With years of quantitative easing behind us, and aggressive measures from central banks during the COVID-19 pandemic, should investors now expect central banks to backstop financial markets? This paper examines asset purchases from the twin perspectives of monetary and financial stability, and argues that investors should not expect central banks to always come to their rescue.

Keywords: central banks; quantitative easing; financial stability; moral hazard (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2023
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