12. Modern Monetary Policy

Great changes took place in monetary policymaking during and after the Global Financial Crisis. At the height of the crisis central banks drastically lowered their policy rates and continued to do so when a deep recession emerged. As lower interest rates had practically no impact, central banks resorted to unconventional monetary policy. Taking unprecedented action, they brought down rates to zero and even lower in Europe. When recovery was slow in coming, more drastic actions followed, central banks buying massive amounts of long-term bonds in an effort to bring down long-term rates. In a further move, forward guidance with respect to future policy rate changes was introduced. Central banks also became more transparent and improved their external communication to the outside world. Intensified cooperation between central banks was a positive outcome of the crisis.