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Has the Financial Crisis Permanently Changed the Practice of Monetary Policy? Has It Changed the Theory of Monetary Policy?

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  • Benjamin M Friedman

Abstract

type="main"> Large-scale asset purchases—and sales too—are likely to become part of the standard toolkit of monetary policymaking. Central banks' purchases since the financial crisis have lowered long-term interest rates relative to short-term rates, and lowered interest rates on more-risky compared to less-risky obligations. Moreover, their introduction fills a conceptual vacuum that has long stood at the heart of monetary policy analysis and implementation. In contrast to the traditional focus on central banks' liabilities, the effectiveness of this policy tool turns on the role of the asset side of central banks' balance sheet. The implications for monetary theory are profound.

Suggested Citation

  • Benjamin M Friedman, 2015. "Has the Financial Crisis Permanently Changed the Practice of Monetary Policy? Has It Changed the Theory of Monetary Policy?," Manchester School, University of Manchester, vol. 83, pages 5-19, September.
    • Handle: RePEc:bla:manchs:v:83:y:2015:i::p:5-19
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    File URL: http://hdl.handle.net/10.1111/manc.12095
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    References listed on IDEAS

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    1. John C. Williams, 2013. "Lessons from the financial crisis for unconventional monetary policy," Speech 125, Federal Reserve Bank of San Francisco.
    2. Benjamin M. Friedman, 2013. "The Simple Analytics of Monetary Policy: A Post-Crisis Approach," The Journal of Economic Education, Taylor & Francis Journals, vol. 44(4), pages 311-328, October.
    3. Friedman, Benjamin Morton, 2013. "The Simple Analytics of Monetary Policy: A Post-Crisis Approach," Scholarly Articles 14117757, Harvard University Department of Economics.
    4. Benjamin M. Friedman, 2013. "The Simple Analytics of Monetary Policy: A Post-Crisis Approach," NBER Working Papers 18960, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Ryuzo Miyao & Tatsuyoshi Okimoto, 2020. "Regime shifts in the effects of Japan’s unconventional monetary policies," Manchester School, University of Manchester, vol. 88(6), pages 749-772, December.
    2. repec:hal:spmain:info:hdl:2441/6m0bv06f219euqrh92910rst87 is not listed on IDEAS
    3. repec:hal:spmain:info:hdl:2441/4605hhkpf780gpp225l09g25al is not listed on IDEAS
    4. Ou Sun & Zhixin Liu, 2016. "Comparison of Monetary Policy Actions and Central Bank Communication on Tackling Asset Price Bubbles—Evidence from China’s Stock Market," PLOS ONE, Public Library of Science, vol. 11(11), pages 1-20, November.
    5. Christophe Blot & Jérôme Creel & Paul Hubert, 2017. "What should the ECB "New Normal" look like ?," Post-Print hal-03567432, HAL.
    6. Yang Hu & Yanran Hong & Kai Feng & Jikai Wang, 2023. "Evaluating the Importance of Monetary Policy Uncertainty: The Long- and Short-Term Effects and Responses," Evaluation Review, , vol. 47(2), pages 264-286, April.
    7. Christophe Blot & Jérôme Creel & Paul Hubert & Fabien Labondance, 2016. "The impact of ECB policies on Euro area investment," Working Papers hal-03459319, HAL.
    8. Peter Hördahl & Jhuvesh Sobrun & Philip Turner, 2016. "Low long-term interest rates as a global phenomenon," BIS Working Papers 574, Bank for International Settlements.

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