Has the Financial Crisis Permanently Changed the Practice of Monetary Policy? Has It Changed the Theory of Monetary Policy?

Benjamin M Friedman

Manchester School, 2015, vol. 83, 5-19

Abstract: type="main">

Large-scale asset purchases—and sales too—are likely to become part of the standard toolkit of monetary policymaking. Central banks' purchases since the financial crisis have lowered long-term interest rates relative to short-term rates, and lowered interest rates on more-risky compared to less-risky obligations. Moreover, their introduction fills a conceptual vacuum that has long stood at the heart of monetary policy analysis and implementation. In contrast to the traditional focus on central banks' liabilities, the effectiveness of this policy tool turns on the role of the asset side of central banks' balance sheet. The implications for monetary theory are profound.

Date: 2015
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