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Monetary Policy and Central Banking in the Wake of the World Financial Crisis

Miroslav Hrnčíř

ACTA VSFS, 2009, vol. 3, issue 2, 137-166

Abstract: The article identifies causes of the world financial crisis and its impact on monetary policy and central banking. Under the pressure of crisis, the standard monetary policy of previous periods shifted to unconventional instruments of “quantitative easing”. This change represents move away from technical monetary policy towards a more activist approach. Will this shift be only temporary and monetary policy will return to traditional standards as the crisis subsides? Or will its impact be of a more permanent character? The article examines the applied unconventional monetary policy measures, their consequences and risk involved. For the past decades central banking has been dominated by consensus which holds the view that central bankers´ prime task is to keep inflation low and stable. Learning the lesson from the current crisis the article discusses the arguments whether monetary policy should be and could be more oriented to the broader issues of financial stability, not just price stability.

Keywords: monetary policy; central banking; financial crisis; price stability; global imbalances; savings glut; liquidity glut; interest rates; quantitative easing; unconventional instruments balance sheets; asset market bubble; inflation expectations (search for similar items in EconPapers)
Date: 2009
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Handle: RePEc:prf:journl:v:3:y:2009:i:1:p:137-166