Monetary Policy Since the Global Financial Crisis

  • Philip Arestis
Part of the International Papers in Political Economy book series (IPPE)


This chapter focuses on monetary policy since the Global Financial Crisis (GFC), and the subsequent ‘Great Recession’ (GR). In effect, and since the GFC and GR, monetary policy makers have abandoned the main policy instrument that had been around prior to the GFC. The pre-GFC monetary policy had focused on manipulating the rate of interest to achieve an Inflation Target (IT), the only objective of monetary policy, namely price stability. In view of the rate of interest reduced to nearly zero after the GFC, monetary policy makers introduced unconventional means to achieve their ITs, namely, Quantitative Easing (QE) along with very low, near-zero and in some cases negative, interest rates. They also introduced financial stability as a new objective, but IT is still around. We discuss these developments in the case of the main economies, namely the United States, the United Kingdom and the Economic and Monetary Union (EMU).


GFC GR IT QE Near-zero/negative interest rates Financial stability Policy coordination 

JEL Classification

E44 E52 E58 E59 


  1. Admati, A., & Hellwig, M. (2013). The bankers new clothes: What’s wrong with banking and what to do about it. Princeton: Princeton University Press.Google Scholar
  2. Angeriz, A., & Arestis, P. (2007). Monetary policy in the UK. Cambridge Journal of Economics, 31(6), 863–884.Google Scholar
  3. Angeriz, A., & Arestis, P. (2008). Assessing inflation targeting through intervention analysis. Oxford Economic Papers, 60(2), 293–317.Google Scholar
  4. Ardjiev, S., Kartasheva, A., & Bogdanova, B. (2013, September). Cocos: A primer. BIS Quarterly Review, 43–56.Google Scholar
  5. Arestis, P. (2011). Keynesian economics and the new consensus in macroeconomics. In E. Hein & E. Stockhammer (Eds.), A modern guide to Keynesian macroeconomics and economic policies. Cheltenham: Edward Elgar Publishing Limited.Google Scholar
  6. Arestis, P. (2015). Coordination of fiscal with monetary and financial stability policies can better cure unemployment. Review of Keynesian Economics, 3(2), 233–247.Google Scholar
  7. Arestis, P. (2016a). Can the report of the ‘five presidents’ save the Euro? European Journal of Economics and Economic Policies: Intervention (EJEEP), 13(1), 28–38.Google Scholar
  8. Arestis, P. (2016b). Financial liberalization, the finance-growth Nexus, financial crises and policy implications. In P. Arestis & M. Sawyer (Eds.), Financial liberalisation: Past, present and future. Annual Edition of International Papers in Political Economy. Basingstoke: Palgrave Macmillan.Google Scholar
  9. Arestis, P., & González Martinez, A. R. (2015). The absence of environmental issues in the new consensus macroeconomics is only one of numerous criticisms. In p. Arestis & M. Sawyer (Eds.), Finance and the macroeconomics of environmental policies. Annual edition of international papers in political economy. Basingstoke: Palgrave Macmillan.Google Scholar
  10. Arestis, P., & Sawyer, M. (2003). Reinstating fiscal policy. Journal of Post Keynesian Economics, 26(1), 3–25.Google Scholar
  11. Arestis, P., & Sawyer, M. (2004a). Re-examining monetary and fiscal policies in the twenty first century. Cheltenham: Edward Elgar.CrossRefGoogle Scholar
  12. Arestis, P., & Sawyer, M. C. (2004b). Can monetary policy affect the real economy? European Review of Economics and Finance, 3(3), 3–26.Google Scholar
  13. Arestis, P., & Sawyer, M. C. (2008). A critical reconsideration of the foundations of monetary policy in the new consensus macroeconomics framework. Cambridge Journal of Economics, 32(5), 761–779.Google Scholar
  14. Arteta, C., Kose, M. A., Stocker, M., & Taskin, T. (2016, August). Negative interest rate policies: Sources and implications (World Bank Group, Policy Research Working Paper 7791). Washington, DC: World Bank.Google Scholar
  15. Aydin, B., & Lall, S. (2011). Incorporating financial stability in inflation targeting frameworks (IMF Working Paper WP/11/224). Washington, DC: International Monetary Fund.Google Scholar
  16. Bank of England. (2012, July 12). The distributional effects of asset purchases. London: Bank of England Report.Google Scholar
  17. Bank of England. (2016). Financial policy committee statement from its policy meeting 23 March 2016. Available at:
  18. Bάrdsen, G., Lindquist, K.-G., & Tsomocos D. P. (2012). Evaluation of macroeconomic models for financial stability analysis. Chapter 3 in Goodhart and Tsomocos (2012a), pp. 32–57. Originally published in, and reprinted from, The Journal of World Economic Review, 3(1), 7–32, 2008.Google Scholar
  19. Beck, M., & Malkhozov, A. (2016, March). How have central banks implemented negative policy rate. BIS Quarterly Review, Bank for International Settlements.Google Scholar
  20. Bernanke, B. (2016). What tools does the fed have left? Part 3: Helicopter money. Brookings, Ben Bernanke’s Blog. Available at:
  21. Bernanke, B., & Gertler, M. (1995). Inside the black box: The credit channel of monetary policy transmission. Journal of Economic Perspectives, 9(1), 27–42.Google Scholar
  22. Bernheim, B. D. (1987). Ricardian equivalence : Theory and evidence (NBER Working Paper Series No. 2330). Cambridge, MA: National Bureau of Economic Research.Google Scholar
  23. Blinder, A. S. (2010). Commentary: Rethinking monetary policy in light of the crisis. Available at:
  24. Blinder, A., & Zandi, M. (2010). How the great recession was brought to an end. Available at:
  25. Carney, M. (2016). Redeeming an unforgiving world. Speech at the 8th Annual Institute of International Finance G20 Conference, Shanghai, China.Google Scholar
  26. Coenen, G., Erceg, C. J., Freeman, C., Furceri, D., Kumhof, M., Lalonde, R., Laxton, D., Lindé, J., Mourougane, A., Muir, D., Mursula, S., de Resende, C., Roberts, J., Roeger, W., Snudden, S., Trabandt, M., & In’t Veld, J. (2012). Effects of fiscal stimulus in structural models. American Economic Journal: Macroeconomics, 4(1), 22–68.Google Scholar
  27. Collard, F., Dellas, H., Diba, B., & Loisel, O. (2017). Optimal monetary and prudential policies. American Economic Journal: Macroeconomics, 9(1), 40–87.Google Scholar
  28. Domanski, D., Scatigna, M., & Zabai, A. (2016, March). Wealth inequality and monetary policy. BIS Quarterly Review, 45–64. Basel: Bank of International Settlements.Google Scholar
  29. Draghi, M. (2016a, June 9). On the importance of policy alignment to fulfil our economic potential. 5th Annual Tommaso Padoa-Schioppa Lecture at the Brussels Economic Forum 2016, Brussels. Available at:
  30. Draghi, M. (2016b, October 25). Stability, equity and monetary policy. 2nd DIW Europe Lecture, German Institute for Economic Research (DIW), Berlin. Available at:
  31. ECB. (2010, January). The ECB’s monetary policy stance during the financial crisis. Monthly Bulletin, 63–71. Frankfurt au Main: European Central Bank.Google Scholar
  32. Eichengreen, B. (2015). Hall of mirrors: The great depression, the great recession, and the uses, and misuses of history. New York: Oxford University Press.Google Scholar
  33. Farmer, R., & Zabczyk, P. (2016). The theory of unconventional monetary policy (NBER Working Paper Series No. 22285). Cambridge, MA: National Bureau of Economic Research.Google Scholar
  34. Friedman, M. (1969). The optimum quantity of money. London: Macmillan.Google Scholar
  35. Galí, J., & Gertler, M. (2007). Macroeconomic modelling for monetary policy evaluation. Journal of Economic Perspectives, 21(4), 25–45.Google Scholar
  36. Goodhart, C. A. E. (2005, October). An essay on the interactions between the Bank of England ’s forecasts, the MPC’s policy adjustments and the eventual outcome (Financial Markets Group Discussion Paper 546). London School of Economics.Google Scholar
  37. Goodhart, C. A. E. (2007, February 28). Whatever became of the monetary aggregates? The Peston Lecture delivered in honour of Maurice, Lord Peston, Queen Mary, University of London.Google Scholar
  38. Goodhart, C. A. E. (2015). Why monetary policy has been comparatively ineffective? The Manchester School, 83(Special Issue), 20–29.Google Scholar
  39. Goodhart, C. A. E., & Tsomocos, D. P. (2012a). The challenge of financial stability: A new model and its applications. Cheltenham: Edward Elgar Publishing Limited.Google Scholar
  40. Goodhart, C. A. E., & Tsomocos, D. P. (2012b). Financial stability in practice: Towards an uncertain future. Cheltenham: Edward Elgar Publishing Limited.Google Scholar
  41. Goodhart, C. A. E., Sunirand, P., & Tsomocos, D. P. (2012a). A time series analysis of financial fragility in the UK banking system. Chapter 10 in Goodhart and Tsomocos (2012a), pp. 225–251. Originally published in, and reprinted from, Annals of Finance, 2, 1–21, 2006.Google Scholar
  42. Goodhart, C. A. E., Sunirand, P., & Tsomocos, D. P. (2012b). A model to analyse financial fragility. Chapter 5 in Goodhart and Tsomocos (2012a), pp. 98–133. Originally published in, and reprinted from, Economic Theory, 27, 107–142, 2006.Google Scholar
  43. Hughes Hallett, A. (2015). Quantitative easing: Side effects in the financial markets, in inequality and in the risk of secular stagnation. European Parliament, Policy Department. Available at:
  44. IMF. (2010a, May 27). Central banking lessons from the crisis. Washington, DC: Monetary and Capital Markets Department, International Monetary Fund.Google Scholar
  45. IMF. (2010b, October). Global financial stability report: Sovereigns, funding, and systemic liquidity (World economic and financial surveys). Washington, DC: International Monetary Fund. Available at:
  46. IMF. (2016a, April). Too slow for too long (World Economic Outlook (WEO)). Washington, DC: International Monetary Fund.Google Scholar
  47. IMF. (2016b). Transcript: Press briefing on the release of the April 2016 Global Financial Stability Report. Available at:
  48. Jarocinski, M., & Lenza, M. (2016, July). How large is the output gap in the euro area. ECB Research Bulletin, No. 24.Google Scholar
  49. King, M. (2012, October 9). Twenty years of inflation targeting. Stamp Memorial Lecture, London School of Economics. Available at:
  50. King, M. (2016). The end of alchemy: Money, banking and the future of the global economy. London: Little, Brown.Google Scholar
  51. Lagarde, C. (2014, May 27). Economic inclusion and financial integrity. Speech given at the conference on inclusive capitalism, London. Available at:
  52. Leeper, E. M. (2016). Should central banks care about fiscal rules? (NBER Working Paper Series No. 22800). Cambridge, MA: National Bureau of Economic Research.Google Scholar
  53. Lim, C., Columba, F., Costa, A., Kongsamut, P., Otani, A., Saiyid, M., Wezel, T., & Wu, X. (2011). Macroprudential policy: What instruments and how to use them? Lessons from country experiences (IMF Discussion Paper WP/11/238). Washington, DC: International Monetary Fund:Google Scholar
  54. Sarin, N., & Summers, L. H. (2016, September 15–16). Have banks gotten safer? (Brookings Papers on Economic Activity).Google Scholar
  55. Svensson, L. E. O. (1997). Inflation forecast targeting: Implementing and monitoring inflation targets. European Economic Review, 41(6), 1111–1146.Google Scholar
  56. Svensson, L. E. O. (1999). Inflation targeting as a monetary policy rule. Journal of Monetary Economics, 43(3), 607–654.Google Scholar
  57. Tressel, T., & Zhang, Y. S. (2016). Effectiveness and channels of macroprudential instruments: Lessons from the Euro area (IMF Discussion Paper WP/16/4). Washington, DC: International Monetary Fund.Google Scholar
  58. Turner, A. (2015). Between Debt and the Devil: Money, credit, and fixing global finance. Princeton: Princeton University Press.Google Scholar
  59. Vickers, J. (2016, April). The systemic risk buffer for UK Banks: A response to the Bank of England ’s consultation paper (LSE Financial Markets Group Paper Series, Special Paper 244).Google Scholar
  60. Woodford, M. (2003). Interest and prices: Foundations of a theory of monetary policy. Princeton: Princeton University Press.Google Scholar
  61. Woodford, M. (2016). Quantitative easing and financial stability (NBER Working Paper Series No. 22285). Cambridge, MA: National Bureau of Economic Research.Google Scholar
  62. World Bank. (2015, June). Negative interest rates in Europe: A glance at their causes and implications. Global Economic Prospects, Chapter 1. Available at:
  63. Zdzienicka, A., Chen, S. Diaz Kalan, F. Laseen, S., & Svirydzenka, K. (2015). Effects of monetary and macroprudential policies on financial conditions: Evidence from the United States (IMF Working Paper WP/15/288). Washington, DC: International Monetary Fund.Google Scholar

Copyright information

© The Author(s) 2017

Authors and Affiliations

  • Philip Arestis
    • 1
    • 2
  1. 1.Department of Land EconomyUniversity of CambridgeCambridgeUK
  2. 2.University of the Basque CountryLeioaSpain

Personalised recommendations