Freedom for the central banks

In the next economic downturn, central banks will likely have to reach further into their unconventional playbook. But which policymakers have the most freedom to act and what does that mean for asset prices?

Our previous research has established that when it comes to the next downturn, central banks have a lot less space to act than they did a decade ago. The days of simply cutting interest rates in periods of economic and market stress are behind us: without alternative options, and the freedom to enact them, there is a risk of a protracted economic slump that seriously undermines corporate earnings and drives up default rates.

With that in mind, we need to consider the potential for truly unconventional monetary policy instead. We ask what central banks can learn from the Japanese monetary policy experience before examining the political and legal hurdles to ‘outside the box��� policy in the UK, US and euro area.