Global macro research

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:
  1. Alternative inflation targets
  2. Modern Monetary Theory
  3. Offsetting negative rates
  4. Macroprudential policies
  5. 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

ECB and BoJ options are very limited versus other major central banks

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