Central Bank Crisis Management

The extraordinary policy responses of global central banks to the 2023 banking turmoil, the COVID-19 pandemic, and the 2007-2009 financial crisis have fostered debate about both the appropriateness and the effectiveness of central bank actions.   This course will discuss the theory and practice of “unconventional” monetary policy tools – i.e., those used to address financial crises, widespread deflation, and deep recessions or depressions.  Examples in the course will be drawn from a broad array of crises, countries, and central banks in both the developed and emerging world over many decades. 

 The bulk of the course will focus on how central banks adapt their policy rules and tools in response to extraordinary financial or economic turmoil. Different types of monetary policy tools will be discussed and analyzed, with particular focus on the design and the effectiveness of various crisis policy tools.  Central to understanding policy effectiveness will be consideration of how financial and macroeconomic conditions impact central bank policy design,  and in turn, how financial markets and the macroeconomy respond to extraordinary policies. 

Examples of the use of crisis management tools – both more and less successful – across jurisdictions will be discussed in the latter half of the course.   The course finishes with discussions of several important and timely dilemmas: Where is the “line” between crisis monetary policies and traditional fiscal policy actions?  Why was the (inflation) impact of COVID-19 policy responses so different from previous episodes of instability?   How do central bank “undo” their crisis management policies and return to “normal”?  What difficulties do central banks face in handling economic side effects and the political consequences of extraordinary policies?