Malcolm Sawyer and Philip Arestis
The general response to the financial crisis of 2007 onwards by central banks included large cuts to the policy interest rate and then adoption of ‘quantitative easing’ alongside many other policies of bail-outs. The low interest rate regime aided the government’s budget position by enabling borrowing at low rates. But they did little to aid recovery as economies continued to dip into and out of recession. Central Banks started to engage in ‘quantitative easing’.
‘Quantitative easing’ has been an unorthodox piece of policy comprising of two elements: the ‘conventional unconventional’ measures: whereby central banks purchase financial assets, such as government securities or gilts, that boosts the stock of money in the form of M0; and ‘unconventional unconventional’ measures: in this way central banks buy high-quality, but illiquid corporate bonds and commercial paper. In this way the stock of money is expected to increase.