Schools brief | Monetary policy after the crash

Controlling interest

The third of our series of articles on the financial crisis looks at the unconventional methods central bankers have adopted to stimulate growth in its wake

Sep 21st 2013

BEFORE the financial crisis life was simple for central bankers. They had a clear mission: temper booms and busts to maintain low and stable inflation. And they had a seemingly effective means to achieve that: nudge a key short-term interest rate up to discourage borrowing (and thus check inflation), or down to foster looser credit (and thus spur growth and employment). Deft use of this technique had kept the world humming along so smoothly in the decades before the crash that economists had declared a “Great Moderation” in the economic cycle. As it turned out, however, the moderation was transitory—and the crash that ended it undermined not only the central bankers’ record but also the method they relied on to prop up growth. Monetary policy has been in a state of upheaval ever since.

This article appeared in the Schools brief section of the print edition under the headline “Controlling interest”