Monetary Policy and The Next Downturn

Should we be concerned about the next crisis?

Do global policymakers have enough ammunition to fight the next crisis?  Central bankers throughout the world may have depleted their monetary arsenals during (and since) the last crisis, and 'normalisation' remains a long way away.  Does this mean that fiscal policy will have to pick up the slack / carry the baton / bite the proverbial bullet?

The below papers address systemic risks, post-GFC macroprudential policies, and the ability of global central banks to adequately respond when the next major crisis arises. 

When the next crisis comes, how will central banks cope? (Wellington Management blog, 2018)

Did developed market central banks learn their lessons for the next downturn? What are the tools that policymakers are likely to reach for and what investment implications would result from these decisions?

Managing the Next Financial Crisis: An Assessment of Emergency Arrangements in the Major Economies (Group of 30, 2018)

This study looks at emergency mechanisms for financial crisis management, specifically examining the changes made to these mechanisms post-GFC and whether these changes will be sufficient for addressing future crises.

In the next downturn, who will call the shots? (BNP Paribas blog, Feb 2019)

Were central bankers successful in averting a deeper crisis, or did they merely delay the eventual reckoning? Furthermore, with a depleted monetary arsenal at their disposal, will the onus to address future crises move from monetary to fiscal authorities?

Freedom for the central banks (LGIM, 2018)

For compliance reasons, this paper is NOT accessible in the United States and Canada

When the next economic downturn occurs, which policymakers and central banks will have the most leeway to act, and what policies will they pull out of their unconventional playbook?

How Investors Should Deal with the Liquidity Dilemma (Amundi AM, Feb 2019)

The fundamental paradox of liquidity is that it dries up when it is most needed. Avoiding liquidity traps, while also being rewarded for accepting liquidity risk remains a key challenge for investors.

Video: 2008 Financial Crisis - A Ten-Year Review (CFA Institute Research Foundation, 2018)

This series of videos from the CFA Institute's conference on the 10th anniversary of the GFC contains over 6 hours of speeches from renowned academics, Nobel Laureates, and central bankers on systemic risk, the banking sector, and lessons learned during and since the onset of the GFC.

The inflation story: 2019 and beyond (Hermes IM blog, Feb 2019)

For compliance reasons, this paper is NOT accessible in the United States

As inflation levels are closely tied to the monetary policy actions of central banks, Hermes looks at the drivers of inflation in several global markets, including the US, the Eurozone, and Japan.

Video - The Long View: Debt and Demographics (AB, 2019)

For compliance reasons, this paper is only accessible in North America and South America

This video addresses the risks inherent in both the global debt overhang and demographic shifts in global working-age populations.

2019: The Year of the Central Banks (Axioma)

In this paper, Axioma looks at historical monetary policy regimes, using a model that incorporates current correlations and sensitivities to run a simulated monetary policy stress test on multiple asset classes.

Forecast errors and monetary policy normalisation in the euro area (Bruegel, 2018)

The authors examine the ECB's forecasting practices, as well as factors that could explain errors in their forecasts. They also look at monetary policy 'normalisation' in several countries, in order to draw lessons for eventual ECB monetary normalisation.

The Fed’s balance sheet is (mostly) a red herring - Fulcrum AM blog, Jan 2019

Fulcrum Asset explains that the intricacies of QT are not as important as the supportive effects of QE, so less emphasis should be placed on the size of the balance sheet and balance sheet 'normalization' policy.