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Should investors rely on central bank asset purchases to backstop markets?

Author

Listed:
  • Ellis, Colin

    (Hult International Business School, UK)

Abstract

During the global financial crisis, central banks in advanced economies cut policy rates to near zero, and then provided further stimulus via balance sheet expansion. In many instances this took the form of quantitative easing — central banks creating new money with which to purchase securities. With years of quantitative easing behind us, and aggressive measures from central banks during the COVID-19 pandemic, should investors now expect central banks to backstop financial markets? This paper examines asset purchases from the twin perspectives of monetary and financial stability, and argues that investors should not expect central banks to always come to their rescue.

Suggested Citation

  • Ellis, Colin, 2023. "Should investors rely on central bank asset purchases to backstop markets?," Journal of Risk Management in Financial Institutions, Henry Stewart Publications, vol. 16(1), pages 13-20, January.
  • Handle: RePEc:aza:rmfi00:y:2023:v:16:i:1:p:13-20
    as

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    More about this item

    Keywords

    central banks; quantitative easing; financial stability; moral hazard;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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