Abstract
Central banks have been pursuing an expansionary monetary policy since before the pandemic, although the health and economic crisis of COVID-19 has boosted asset purchase programmes. After the Great Recession, a new phase began, characterised by low interest rates and liquidity injections. These policies spilled over into financial markets and are leading to higher inflation. These policies stabilised the situation in the short term, but if they continue indefinitely there is a risk of debt overhang, investment mistakes and high inflation in the future. The aim of this article is to analyse monetary policy developments from the Great Recession to the COVID-19 crisis. Correlations between different macroeconomic variables will be shown through IBM SPSS Statistics. For this purpose, bi-variate correlations were used. For the predictions and confidence of the model data, Tableau Desktop Edition was used, which in turn was used for the generation of the graphs. There is a strong correlation between the growth of monetary aggregates and public debt and stock market capitalisation for the selected indicators. The main contribution of this research is the analysis of the long-term effects of a monetary policy.
Highlights
The aim of this article is to analyse the central bank monetary policy from the years following the Great Recession to the economic crisis generated by the COVID-19 pandemic
The impact of these crises has implied an increase in public borrowing in many countries to cope with rising government expenditures aimed at boosting economic recovery. The financing of this debt has fallen on the central banks of the respective currency areas, which have adopted lax monetary policies consisting of low interest rates (Rogoff 2017; Wang 2018; Echarte Fernández et al 2021) and the purchase of these securities, expanding their balance sheets and increasing liquidity
It is true that expansionary policies have stabilised the situation in the short term after events such as the Great Recession or the pandemic, but if maintained indefinitely they can generate imbalances and risks such as the return of inflation in developed countries, public over-indebtedness and massive investment errors in the financial markets through a process of unsustainable growth that ends in a crisis (Switzer and Picard 2016; Kaczmarek et al 2021)
Summary
The aim of this article is to analyse the central bank monetary policy from the years following the Great Recession to the economic crisis generated by the COVID-19 pandemic.The impact of these crises has implied an increase in public borrowing in many countries to cope with rising government expenditures aimed at boosting economic recovery. The financing of this debt has fallen on the central banks of the respective currency areas, which have adopted lax monetary policies consisting of low interest rates (Rogoff 2017; Wang 2018; Echarte Fernández et al 2021) and the purchase of these securities, expanding their balance sheets and increasing liquidity. For many years this monetary expansion was not passed on to the price of final goods and services but it had an impact on financial markets (bonds and stocks) and possibly on the price of certain safe haven assets such as decentralised cryptocurrencies and gold. It is true that expansionary policies have stabilised the situation in the short term after events such as the Great Recession or the pandemic, but if maintained indefinitely they can generate imbalances and risks such as the return of inflation in developed countries, public over-indebtedness and massive investment errors in the financial markets through a process of unsustainable growth (boom) that ends in a crisis (bust) (Switzer and Picard 2016; Kaczmarek et al 2021)
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