Policy options in the next downturn
A key concern facing central banks is that interest rates are so low there is no room for meaningful cuts to counter a future downturn. We examine some alternative policy options that could be used during the next economic downturn.
- China and the US have policy space, but the next downturn could see major central banks look beyond interest-rate adjustments
- We outline five of the most likely policy tools that central banks and governments may turn to in future years:
- Alternative inflation targets
- Modern Monetary Theory
- Offsetting negative rates
- Macroprudential policies
- Yield curve control
- Of the major central banks, the European Central Bank and the Bank of Japan appear the most limited in terms of future policy options
- The Federal Reserve and People's Bank of China have considerably more options.
ECB and BoJ options are very limited versus other major central banks
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