Doubling Your Monetary Base and Surviving: Some International Experience

The authors examine the experience of selected central banks that have used large-scale balancesheet expansion, frequently referred to as “quantitative easing, ” as a monetary policy instrument. The case studies focus on central banks responding to the recent financial crisis and Nordic central banks during the banking crises of the 1990s; others are provided for comparison purposes. The authors conclude that large-scale balance-sheet increases are a viable monetary policy tool provided the public believes the increase will be appropriately reversed. (JEL E40, E52, E58) Federal Reserve Bank of St. Louis Review, November/December 2010, 92(6), pp. 481-505. The recent financial crisis has challenged monetary policymakers around the world on a scale that has not been seen since the 1930s. In normal times, the monetary policy for most central banks is implemented by (i) targeting an overnight interest rate and (ii) holding as assets securities issued by the country’s own national treasury. In some