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 sparked debate about the appropriateness and effectiveness of central bank actions. This course will explore the theory and practice of “unconventional” monetary policy tools—those used to address financial crises, widespread deflations, and deep recessions or depressions.

Course examples will be drawn from a wide range 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 the face of extraordinary financial or economic turmoil.

Different types of monetary policy tools will be discussed and analyzed, with particular emphasis on the design and effectiveness of various crisis policy tools. Understanding policy effectiveness will require examining how financial and macroeconomic conditions shape central bank policy design, and how financial markets and the macroeconomy respond to these extraordinary measures. The latter half of the course will examine the use of crisis management tools—both successful and unsuccessful—across different jurisdictions.

The course will conclude with discussions of several important and timely dilemmas: Where is the line between crisis monetary policies and traditional fiscal policy actions? Why was the inflationary impact of COVID-19 policy responses so different from previous episodes of instability? How do central banks “undo” their crisis management policies and return to “normal”? What challenges do central banks face in managing the economic side effects and political consequences of extraordinary policies?