Introduction

Central Banks around the world make conventional and unconventional monetary policy decisions as changes occur in the macroeconomic cycle. For example, they may undertake conventional (also known as “plain-vanilla”) decisions when maintaining “price stability” by adjusting the short-term reference interest rate to counter inflation risks. These decisions, however, typically become less important when reference interest rates inch closer to the inflation target. Central Banks may also intervene to stimulate the macroeconomy by injecting liquidity into the banking system or buying significant amounts of assets in financial markets. These direct interventions of central banks in financial markets impose demand pressures on selected assets, raise their prices but lower their yields. They are known as “quantitative easing” policies. These actions have had greater importance in the year 2008, when they were first experimented with the disruptive effects of the great crisis that erupted in the US financial markets. Those policies have later been adopted by other central banks. Notably, the European central bank adopted these actions to confront the severe sovereign debt crisis of 2011–2012. They have also been an important means of intervention of major central banks during the recent Covid-19 pandemic crisis in 2020.