Necessity as the mother of invention : monetary policy after the crisis.
Date: 2017-04-21
Institutions: European Central Bank
Subjects: central bank, monetary crisis, monetary policy, sample survey

Working Paper Series 

Alan Blinder, Michael Ehrmann,  
Jakob de Haan, David-Jan Jansen 

Necessity as the mother of invention:  
monetary policy after the crisis 

No 2(cid:19)(cid:23)(cid:26) / (cid:36)(cid:83)(cid:85)(cid:76)(cid:79) 2017 

Disclaimer: This paper should not be reported as representing the views of the European Central Bank 
(ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB. 

 
 
 
MONETARY POLICY AFTER THE CRISIS 

Abstract: We ask whether recent changes in monetary policy due to the financial crisis 
will be temporary or permanent. We present evidence from two surveys—one of central 
bank  governors,  the  other  of  academic  specialists.  We  find  that  central  banks  in  crisis 
countries are more likely to have resorted to new policies, to have had discussions about 
mandates,  and  to  have  communicated  more.  But  the  thinking  has  changed  more 
broadly—for  instance,  central  banks  in  non-crisis  countries  also  report  having 
implemented macro-prudential measures. Overall, we expect central banks in the future 
to  have  broader  mandates,  use  macro-prudential  tools  more  widely,  and  communicate 
more actively than before the crisis. While there is no consensus yet about the usefulness 
of  unconventional  monetary  policies,  we  expect  most  of  them  will  remain  in  central 
banks’ toolkits, as governors who gain experience with a particular tool are more likely 
to assess that tool positively.  

Keywords: monetary policy, central banks, surveys 
JEL classifications: E52, E58

ECB Working Paper 2047, April 20171MONETARY POLICY AFTER THE CRISIS 

Non-technical summary 

The global financial crisis has had a profound impact on the practice of monetary policy 
in a range of countries. Due to the speed and force of developments in financial markets 
and of the economy more broadly, necessity was often the mother of invention. The key 
question today is to what extent these changes will prove to be temporary or whether we 
are seeing permanent changes in the practice of monetary policy. We shed light on this 
question  primarily  via  two  new  (and  almost  identical)  surveys  of  opinion—one  of 
governors  of  central  banks,  the other  of  academic  specialists.  In  addition to the  survey 
data, we take stock of the findings of the academic literature. Our findings suggest that 
necessity has indeed been the trigger for many central bank inventions—central banks in 
crisis  countries  are  much  more  likely  to  have  resorted  to  new  policies,  to  have  had 
discussions  about  their  mandates,  to  have  communicated  more  and  to  have  received 
criticism.  But  the  thinking  has  changed  more  broadly—for  instance,  central  banks  in 
non-crisis  countries  are  also  likely  to  have  reconsidered  their  mandate,  or  to  have 
implemented macro-prudential measures. Based on these results, we see central banks in 
the  future  as  having  broader  mandates,  using  macro-prudential  tools  more  widely,  and 
communicating  more  than  before  the  crisis.  While  there  is  no  agreement  yet  about  the 
future use of unconventional monetary policy tools, we expect most of them will remain 
in  central  banks’  toolkits,  in  particular  because  central  bank  governors  who  gain 
experience  with  a  particular  tool  are  considerably  more  likely  to  assess  that  tool 
positively. Finally, the relationship between central banks and their governments might 
well have changed, with central banks “crossing the line” more routinely than in the past. 
But this is the one area where only the future can tell what the new status quo will look 
like. 
Finally, our results suggest that there are some important differences between the views 
of  academics  and  central  bank  heads.  First,  while  many  scholars  typically  support 
keeping  most  of  the  unconventional  policies  in  central  banks’  toolkits,  central  bank 
governors  are  considerably  more  skeptical,  often  saying  that  it  is  “too  early  to  judge.” 
While  those  central  bank  governors  who  have  gained  hands-on  experience  with 
unconventional  tools  tend  to  assess  these  tools  more  positively,  the  cautious  tone  of 
many central bank governors about the future use of unconventional tools suggests that 
they  still  perceive  a  lot  of uncertainty  about  their  costs  and  benefits.  Second,  although 
governors  and  academics  agree  that  central  bank  communication  has  become  more 
frequent  since  the  crisis,  and  that  these  changes  are  here  to  stay,  or  might  even  go 
further,  there  are  differences  on  the  usefulness  of  forward  guidance  as  a  policy  and  a 
communication  tool.  Academics  have  a  strong  preference  for  data-based  forward 
guidance,  whereas  the  most  popular  form  of  forward  guidance  among  central  bank 
governors  is  purely  qualitative.  Third,  whereas  central  governors  feel  that  they  did  not 
receive a lot of criticism for acting politically or crossing the line into the political realm 
during the crisis, most academic respondents think that central banks were criticized for 
crossing the line into politics. 

ECB Working Paper 2047, April 20172MONETARY POLICY AFTER THE CRISIS 

1. INTRODUCTION

The global financial crisis has had a profound impact on the practice of monetary policy
in a range of countries. Due to the speed and force of developments in financial markets
and  of  the  economy  more  broadly,  monetary  policymakers  rarely  had  the  luxury  of
performing  extensive  ex  ante  analyses  of  prospective  changes  in  their  responsibilities,
instruments, or communications. Necessity was often the mother of invention.

The  key  question  today  is  to  what  extent  these  changes  will  prove  to  be  temporary,
primarily motivated by the financial crisis, or whether we are seeing permanent changes
in  the  practice  of  monetary  policy.  These  are  not  easy  questions  to  answer  in  2016
because  the  crisis  is  still  recent—indeed,  it  is  arguable  that  it  continues  in  some
countries—and  since  few,  if  any,  central  banks  have  completed  their  “exit”  from  the
extraordinary policies induced by the crisis.

In this paper, we aim to shed light on this question primarily via two new (and almost
identical) surveys of opinion—one of governors of central banks, the other of academic
specialists.1  We  concentrate  on  what,  to  us,  seem  to  be  the  four  main  sub-questions:
Have  there  been  important,  and  lasting,  changes  in  central  bank  mandates,  monetary
policy  instruments,  central  bank  communications,  and  the  place  of  the  central  bank
within the government? In addition to the survey data, we take stock of the findings of
the academic literature and, here and there, add our own opinions.

To  collect  the  views  of  central  bank  governors  and  academics,  we  conducted  two
surveys between February and May 2016. In the first survey, we contacted the heads of
95  central  banks  via  e-mail with  a  questionnaire  consisting  of 13  questions.2  In  all, 55
questionnaires  were  returned  to  us,  for  a  gratifying  (these  days)  response  rate  of  58%.
Concerning  backgrounds,  16  of  the  completed  questionnaires  came  from  governors  of
banks  in  advanced  economies  (AE),  32  from  BIS  members,  20  from  institutions  that
used inflation targeting prior to the financial crisis and 12 from countries that were hit by
the financial crisis according to the database of Laeven and Valencia (2013) (Table 1).3
For  the  second  survey,  we  sent  a  similar  questionnaire  to  401  academic  economists
from  the  relevant  research  programs  of  the  NBER  and  the  CEPR.4  We  received  159
questionnaires,  which  corresponds  to  a  disappointing  response  rate  of  just  below  40%.
Of the responding academics, 101 currently reside in the U.S. (though many of those are
not native Americans), while 31 are located in the euro area, 14 are in the U.K., and 13

1  In  related  survey  work,  Siklos  (2016)  reports  results  for  39  central  banks,  while  Carré  et  al.  (2013)  report  results  for  15 
central bankers and 31 (mainly European) economists. Siklos (2016) examines to what extent central banks have changed their 
communication strategy since 2007. He concludes that while differences between inflation targeting and non-inflation targeting 
central  banks  persist,  these  differences  have  become  smaller.  He  also  finds  that  inflation  targeters  put  more  emphasis  on 
communicating about macro-prudential policies than non-inflation targeters. This result is in line with our finding that inflation 
targeters are  more  likely  to  adopt  macro-prudential  policies  than  non-inflation targeters. Carré et  al. (2013)  analyse to  what 
extent the pre-crisis consensus on monetary policy making has changed since the crisis. In line with our findings, they report 
that central bankers are generally less eager than academics to permanently adopt  changes in  monetary policy introduced in 
response to the financial crisis. 
2 The questionnaires are available in an appendix. We did not contact the heads of National Central Banks from the euro area, 
nor the Presidents of the regional Federal Reserve Banks. 
3 These subgroups overlap, of course. 
4  We  include  three  NBER  Programs:  Economic  Fluctuations  and  Growth,  International  Finance  and  Macroeconomics,  and 
Monetary Economics. We also include three CEPR Programme Areas: International Macroeconomics and Finance, Monetary 
Economics and Fluctuations, and Macroeconomics and Growth.  

ECB Working Paper 2047, April 20173MONETARY POLICY AFTER THE CRISIS 

are in a range of other (mainly European) countries. It is worth emphasizing that while 
the academic sample is dominated by respondents from the U.S., the euro area, and the 
U.K.,  the  central  bank  sample  is  not.  For  this  reason,  we  sometimes  report  tabulations
that  try  to  “match”  the  geographies  better.  We  also  tracked  the  backgrounds  of  our
responding  academics.  Most  have  been  trained  in  the  United  States:  84%  hold  a  U.S.
PhD.  Around  a  quarter  have  previously  worked  in  a  central  bank.  In  contrast  to  the
central bank governors, most academic respondents (82%) are residents and citizens in
countries that were hit by the financial crisis.

Two  methodological  points  about  surveying  in  general,  and  surveying  central  bank 
governors  in  particular,  bear  emphasis—as  we  know  from  questions  we  have  received 
from readers and seminar participants. The first is that survey instruments must be brief 
and the questions easy for respondents to answer else the response rate will be extremely 
low. Our academics’ questionnaire could be completed easily in five minutes, maybe in 
three, and yet the response rate didn’t reach 40%. Second, you cannot ask central bank 
heads sensitive questions, even if you guarantee confidentiality (which we did). They are 
a  tight-lipped  group  that  knows  how  to  keep  secrets.  So  we  restricted  ourselves  to 
questions  that,  we  imagined,  central  bankers  would  probably  be  willing  to  answer  in 
public.5 
With that in mind, here are our key findings: Necessity has indeed been the trigger for 
many central bank inventions—central banks in crisis countries are much more likely to 
have  resorted  to  new  policies,  to  have  had  discussions  about  their  mandates,  to  have 
communicated more and to have received criticism. But the thinking has changed more 
broadly—for  instance,  central  banks  in  non-crisis  countries  are  also  likely  to  have 
reconsidered  their  mandate  or  to  have  implemented  macro-prudential  measures.  Based 
on  the  surveys,  we  hypothesize  that  central  banks  in  the  future  will  have  broader 
mandates, use macro-prudential tools more widely, and communicate more than before 
the  crisis.  Even  though  there  is  not  yet  an  agreement  about  the  future  use  of 
unconventional monetary policy tools, we think that most of them will remain in central 
banks’ toolkits, in particular because central bank governors who gained experience with 
a particular tool are considerably more likely to assess that tool positively. Finally, the 
relationship between the central banks and their governments might well have changed, 
with central banks “crossing the line” more routinely in the future. But this is conjecture; 
only the future will tell. 

Having said that, it is important to recognize that the world of central banking—which 
stretches far beyond the Federal Reserve, the European Central Bank (ECB), the Bank of 
England,  and  the  Bank  of  Japan—did  not  change  nearly  as  much  as  many  academic 
discussions (which concentrate on these four) might lead you to believe. In particular, in 
many  countries,  unconventional  monetary  policies  were  not  considered,  and  central 
banks  have  not  been  under  extensive  scrutiny  and  criticism.  On  the  other  hand,  those 
four  central  banks  cover  almost  half  of  the  world’s  GDP  (World  Bank,  2015),  making 
them especially interesting “special cases.” 

5 We think we succeeded. We didn’t get many blanks. 

ECB Working Paper 2047, April 20174MONETARY POLICY AFTER THE CRISIS 

Table 1. Details on survey response 

Governors

   Africa 

   Americas 

   Asia and Oceania 

   Europe 
   Advanced economy a  
   BIS member 
   Inflation targeter b
   Country affected by crisis c  
Academics d
   Euro area 

   United Kingdom 

   United States 

   Other countries 

   Female 

   U.S. PhD 
   Central bank experience e
   Monetary economist f 
   EME background g
   Full crisis exposure h

Received 

55

Response rate 

57.9%

159

8 

11 

18 

18 

16 

32 

20

12 

31 

14 

101 

13 

18 

134 

41

81 

17

131

39.7%

Notes: a Based on IMF WEO classification. b Countries that introduced inflation targeting before 
2007.  Based  on  Hammond  (2012).  c  According  to  the  Systemic  Banking  Crisis  database  by 
Laeven  and  Valencia  (2013).  d  Country  classification  refers  to  place  of  main  residence.  e  Prior 
work experience in central banks, at least at the Economist level, not including research visits or 
consultancies.  f  Member  of  NBER  program  Monetary  Economics  or  CEPR  program  Monetary 
Economics  and  Fluctuations.  g  Residence  or  citizenship  in  an  emerging  market  economy.  h
Residence  and  citizenship  in  countries  that  were  affected  by  the  crisis.  Source:  Authors’ 
calculations based on survey conducted in 2016. 

Finally, our results suggest that there are some important differences between the views 
of  academics  and  central  bank  heads.  First,  while  many  scholars  typically  support 
keeping  most  of  the  unconventional  policies  in  central  banks’  toolkits,  central  bank 
governors  are  considerably  more  skeptical,  often  saying  that  it  is  “too  early  to  judge.” 
While  those  central  bank  governors  who  have  gained  hands-on  experience  with 
unconventional  tools  tend  to  assess  these  tools  more  positively,  the  cautious  tone  of 
many central bank governors about the future use of unconventional tools suggests that 
they  still  perceive  a  lot  of uncertainty  about  their  costs  and  benefits.  Second,  although 
governors  and  academics  agree  that  central  bank  communication  has  become  more 
frequent  since  the  crisis,  and  that  these  changes  are  here  to  stay,  or  might  even  go 
further,  there  are  differences  on  the  usefulness  of  forward  guidance  as  a  policy  and  a 
communication  tool.  Academics  have  a  strong  preference  for  data-based  forward 

ECB Working Paper 2047, April 20175MONETARY POLICY AFTER THE CRISIS 

guidance,  whereas  the  most  popular  form  of  forward  guidance  among  central  bank 
governors  is  purely  qualitative.  Third,  whereas  central  governors  feel  that  they  did  not 
receive a lot of criticism for acting politically or crossing the line into the political realm 
during the crisis, most academic respondents think that central banks were criticized for 
crossing the line into politics.  

2. CENTRAL BANK GOALS

The global financial crisis challenged important elements of the pre-existing consensus
that  monetary  policy  should  be  aimed  at  price  stability  and  should  use  just  one
instrument: a short-term policy interest rate. But no new consensus has yet been reached.
In  our  view,  several  elements  of  the  pre-crisis  consensus,  such  as  central  bank
independence  and  the  focus  on  long-term  price  stability,  remain  valid  today.  Other
elements, however, may have to be rethought.

Figure 1. Discussions about the central bank mandate outside of the central bank  
Notes:  The  left-hand  chart  shows  whether,  according  to  central  bank  governors,  a  discussion 
took place outside the central bank about changing the mandate. The right-hand side chart shows 
the  changes  that  were  discussed  (in  %  of  the  respondents  who  answered  “Yes”).  The 
explanations  provided  in  the  survey  indicate  that when  governors answer  “other”,  they  mostly 
refer  to  discussions  on  adding  financial  stability.  Source:  Authors’  calculations  based  on  a 
survey conducted in 2016. 

To assess central bankers’ view on whether their mandates had changed, we asked two 
questions in our survey. The first pertained to external opinions and influences: “Did the 
world  financial  crisis  of  2007-2009  and/or  its  aftermath  create  discussions  in  your 
country but outside your central bank about whether it would be desirable to modify the 
bank’s  mandate  in  any  way?  If  “Yes,”  were  those  discussions  about:  (please  check  as 
many as  apply)”.  As  the  left-hand  chart in  Figure  1 shows,  the  answers  to  the  “yes  or 
no”  question  literally  comprised  a  bottle  half  full  and  half  empty.  Exactly  half  the 
governors answered “yes,” which surprised us a bit on the low side. 

We  asked  the  same  two  questions  about  discussions  within  central  banks:  “Did  the 
world financial crisis of 2007-2009 and/or its aftermath create discussions inside your 

ECB Working Paper 2047, April 20176MONETARY POLICY AFTER THE CRISIS 

central bank about whether it would be desirable to modify the bank’s mandate in any 
way? (please check one)” and “If “Yes,” were those discussions about: (please check as 
many  as  apply).”  (See  Figure  2.)  Here  we  found—again,  perhaps  surprisingly—a  bit 
more  interest  in  changing  the  mandate  within  than  outside  the  central  bank.  (Aren’t 
central bankers stodgy about change?)  

Answers from academics were broadly similar to a question that asked, “Did the world 
financial  crisis  of  2007-2009  and/or  its  aftermath  lead  you  to  think  that  it  would  be 
desirable  to  modify  the  mandate  of  your  country’s  central  bank  in  any  way?  (please 
check one)” and “If “Yes,” would these modifications apply to: (please check as many 
as apply).” Notice that the question here is about desirability—a somewhat sterner test 
than just having discussions. The academics were a bit less enamored of changing their 
central banks’ mandate (54%); see Table A1 in the Appendix for details.6 

Figure 2. Discussions about the central bank mandate inside the central bank  
Notes:  The  left-hand  chart  shows  whether,  according  to  central  bank  governors,  a  discussion 
took place inside the central bank about changing the mandate. The right-hand side chart shows 
the  changes  that  were  discussed  (in  %  of  the  respondents  who  answered  “Yes”).  The 
explanations  provided  in  the  survey  indicate  that when  governors answer  “other”,  they  mostly 
refer  to  discussions  on  adding  financial  stability.  Source:  Authors’  calculations  based  on  a 
survey conducted in 2016. 

To dig a bit deeper, we tried to explain the answers of the governors (where we have 
substantial  cross-country  variation)  based  on  country  and  central  bank  characteristics, 
and those of the academics (where we only have little cross-country variation) based on 
individual characteristics. We created dummy variables equal to one if there has been a 
discussion inside/outside the central bank about its mandate, and if the academic finds it 
desirable to modify the mandate, and modeled each as a probit. 

For the governors’ answers, we considered the following explanatory variables: 
 A dummy indicating advanced economies, according to the IMF classification;

6 We used the possibly-ambiguous wording “your country” without telling the academics whether that meant their country of 
residence or their country of origin. But the questionnaire did instruct them, “If your country of residence is in the euro area, 
please interpret this phrase as referring to the European Central Bank.” So we imagine most used their country of residence.

ECB Working Paper 2047, April 20177MONETARY POLICY AFTER THE CRISIS 



Trade  openness,  measured  as  the  ratio  of  exports  and  imports  to  GDP  (Source:
World Bank);

 A dummy indicating countries hit by the financial crisis, according to the database

of Laeven and Valencia (2013);

 A dummy indicating inflation targeters, based on Hammond (2012);
 A dummy for countries with flexible exchange rates, according to the IMF Annual





Report on Exchange Arrangements and Exchange Restrictions;
The  level  of  central  bank  independence  in  2010,  according  to  Bodea  and  Hicks,
(2015); and
The change in their measure of central bank independence between 1995-2007 and
2008-2010.7

Limited  as  we  are  by  the  small  sample  size,  we  first  run  univariate  regressions 
(reported in Table A2 in the Appendix). Based on these results, we select a small set of 
regressors to include in multivariate  regressions.  Table  2 reports  marginal effects from 
two probits using three regressors. We find a 38 percentage point higher likelihood that 
there  had  been  external  discussions  about  the  central  bank  mandate  in  countries  that 
were hit by the crisis. That is not surprising, but there is no significant effect on internal 
discussions  (the  marginal  effect  is  about  half  as  large  and  not  statistically  significant). 
Likewise, the marginal effects of being an advanced economy or an inflation targeter are 
insignificant for either external or internal discussions. 

Table 2. Determinants of discussions about central bank mandates 

Mandate discussions outside 
the central bank 

Mandate discussions inside 
the central bank 

Advanced economy 

Hit by crisis 

Inflation targeting 

Observations
Pseudo R2

0.151 

(0.140)

0.384*** 

(0.148)

-0.058

(0.133)

55

0.119

-0.069

(0.147)

0.207

(0.158)

-0.179

(0.130)

55

0.042

Notes: The table reports marginal effects of a probit model that explains governors’ responses as to 
whether  or  not  there  has  been  a  discussion  about  the  central  bank  mandate.  Numbers  in 
parentheses  denote  robust  standard  errors.  ***  identifies  statistical  significance  at  the  1%  level. 
Source: Authors’ calculations based on survey among central bank governors conducted in 2016. 

With  the  academics’  responses,  we  have  a  much  larger  sample  size,  and  so  run  only 
multivariate regressions, including the following (mostly sourced from respondents’ CVs 
as provided on their websites): 



Female (dummy variable for female respondents)

7  The  number  of  observations in  regressions  using  central  bank  independence  variables  drops  due  to  missing  data  for  some 
countries.  

ECB Working Paper 2047, April 20178MONETARY POLICY AFTER THE CRISIS 

 Year of PhD, a proxy for age
 Dummy for a PhD from a U.S. university, to proxy for the type of education


Central  bank  experience:  A  dummy  for  respondents  who,  at  some  point  in
their  career,  have  worked  in  a  regular  position  in  a  central  bank,  at  the
Economist level or above

 Monetary economist: A dummy variable for members of the NBER or CEPR







monetary program
Emerging  market  background:  A  dummy  equal  to  one  if  the  respondent
resides in an EME, or has EME citizenship8
Full crisis exposure: A dummy equal to one if the respondent both resides in
and is a citizen of a country hit by the crisis9
“Country” fixed effects for the United States (benchmark category), the UK,
the euro area, and other countries

To  save  space,  and  because  there  are  only  few  significant  variables,  the  results  for 
academics  are  reported  in  Table  A3  in  the  Appendix.  Having  had  central  bank 
experience makes respondents 18 percentage points more likely to have reconsidered the 
central bank’s mandate. Residents of the euro area or the United Kingdom are 28 and 44 
percentage points more likely than their U.S. counterparts to answer affirmatively. 

Discussing  the  mandate  is  one  thing,  but  what  changes  are  governors  and  academics 
thinking about? Looking at the second part of our questions to the governors (the right-
hand panels of Figures 1 and 2), the change most frequently discussed, both internally 
and  externally,  is  adding  a  financial  stability  objective  to  the  mandate.10  Changing  the 
inflation  target  was  also  mentioned by  a  number  of  governors.  (Academic  respondents 
were  a  bit  more  enamored  of  changing  (presumably  raising)  the  inflation  target  than 
central bankers; see Table A1 in the Appendix.) That these two answers showed up most 
prominently  is  hardly  surprising.  After  all,  there  has  been  considerable  academic  and 
policy debate over each—which we now briefly summarize. 

2.1. Increase the inflation target? 

Price  stability  remains  the  primary  objective  of  most  central  banks,  and  our  survey 
results show that this consensus was untouched by the crisis. Price stability is most often 
defined as an inflation rate around 2 per cent, but a discussion on the optimal level has 
been  triggered  by  suggestions  that  central  banks  raise  their  inflation  targets  (see,  for 
example, Blanchard et al., 2010; Ball, 2014).  

There  is  general  consensus  that  central  banks  should  aim  for  a  low  but  positive 
inflation rate for several reasons. First, a little inflation may make it easier for firms to 

8 We collect EME residence and EME citizenship in one variable, as there is only 1 respondent who resides in an EME. By 
adding the citizenship criterion we identify another 16 respondents with some EME background.  
9  As  with  the  EME  background  variable,  we  combine  a  residence  and  citizenship  criterion  in  one  variable  to  get  more 
observations. There are only  5  respondents who  reside  in a  country that  was not hit by the crisis. By adding  the citizenship 
criterion we identify another 23 respondents who were not fully exposed to the crisis, as their country of citizenship was not hit 
by the crisis. 
10 One respondent mentioned adding economic growth and two referred to nominal income targeting. 

ECB Working Paper 2047, April 20179MONETARY POLICY AFTER THE CRISIS 

reduce real wages in the face of declining demand and sticky nominal wages (Akerlof et 
al., 1996).  

Second,  a  low  rate  of  inflation  provides  some  insurance  against  deflation,  which  is 
generally regarded as a more serious problem than inflation. Deflation raises the real cost 
of servicing debt, perhaps forcing debtors to sell assets or default on their loans. It can 
therefore create a vicious cycle of rising real debt burdens and financial distress, which 
in turn may cause more downward pressure on prices.  

Third, there are upward biases in most official estimates of inflation. Mis-measurement 
may  result  from,  e.g.,  inadequate  adjustments  for  quality  improvement,  difficulties  in 
incorporating new goods into the indexes, changes in consumers’ shopping patterns that 
may favor discount retailers, and the classic substitution bias (Billi and Kahn, 2008).  

Finally,  at  very  low  levels  of  inflation,  nominal  interest  rates  will  also  be  very  low, 
limiting  a  central  bank’s  ability  to  ease  monetary  policy  in  response  to  economic 
weakness.  Once  the  policy  rate  reaches  the  lower  bound,  which  may  be  below  zero, 
conventional monetary easing becomes impossible. 

This last point is the focus of the current discussion. Before the financial crisis, it was 
widely believed that 2 per cent inflation was sufficient to minimize the probability that 
the lower bound would be a constraint and that, if it occurred, the likely damage would 
be  small.  The  aftermath  of  the  crisis  has  changed  those  views.  Whether  central  banks 
should  raise  their  inflation  targets  to  account  for  the  risk  of  hitting  the  lower  bound 
hinges on 1) how serious this risk is; 2) how high the lower bound is; 3) the welfare costs 
of hitting the bound; and 4) the costs (including loss of credibility) of transitioning to a 
higher inflation target. Furthermore, it is important to distinguish between two different 
concerns:  avoiding  the  effective  lower  bound  in  the  first  place,  and  boosting  the 
economy once the bound is binding. We take these up in turn. 

Several  papers  quantify  the  risks  of  hitting  the  lower  bound  by  simulating  New 
Keynesian models of the economy. Generally, they find that the problem is not serious 
enough to justify a higher rate of inflation. (One well-known example is Reifschneider 
and  Williams,  2000.)  One  reason  is  that  the  welfare  costs  of  such  episodes  are  low 
(Coibion et al., 2012). But proponents of raising the inflation target argue that the risks 
are greater than these models suggest—because, for example, inflation and both nominal 
and real interest rates were much higher in the simulation periods than they are likely to 
be  going  forward (Ball,  2014;  Krugman,  2014).  So  smaller shocks  will suffice  to  push 
the policy rate to its lower bound. 

Despite  its  theoretical  importance  to  this  and  other  issues,  recent  empirical  studies 
have  not  come  up  with  a  uniform  empirical  definition  of  the  natural  rate  of  interest. 
Well-known estimates by Laubach and Williams (2015) suggest that the natural rate in 
the U.S. fluctuates over time but exhibits a downward trend, reaching about 2 per cent in 
2007  and  plummeting  to  zero  (where  it  remains)  by  2010.  Hamilton  et  al.  (2015), 
however, emphasize the large uncertainty around such estimates.  

When  Blanchard  et  al.  (2010)  proposed to raise  the  inflation  target,  the  lower  bound 
was thought to be no lower than zero. Now, we think it is negative, which leaves central 
bankers  more  room  to  operate.  Furthermore,  the  crisis has  shown  that the  central  bank 

ECB Working Paper 2047, April 201710MONETARY POLICY AFTER THE CRISIS 

still  has  viable  tools  once  the  lower  bound  on  nominal  interest  rates  is  hit—including 
forward guidance, large-scale purchases of securities, and exchange rate interventions. If 
such unconventional tools are highly effective, the benefits of raising the inflation target 
would be much lower.   

Having said that, what are the costs of raising the inflation target? Two types of costs 
are discussed in the literature, namely the costs of higher inflation per se and the loss of 
central bank  credibility  from raising  the inflation target.  Since the first  is  well-trodden 
territory (cf., Mishkin, 2011), we’ll concentrate on the second—which is the one relevant 
to post-crisis changes. 

In  particular,  raising  the  inflation  objective  may  threaten a  central bank’s  credibility, 
which  is  widely  believed  to  be  among  central  banks’  most  important  assets.  For 
example,  a  survey  by  Blinder  (2000)  some  years  ago  found  that  a  large  majority  of 
central  bankers  viewed  their  credibility  as  “of  the  utmost  importance”  (the  highest 
possible ranking) Why? Because (in order of importance) credibility helps a central bank 
(a) keep  inflation  low,  (b)  change  tactics  when  necessary,  and  (c)  retain  support  for
independence. Perhaps more central banks would opt for higher inflation targets if they
were  starting  from  scratch  today.  But  they  are  not.  Raising  the  inflation  target  may
generate  expectations  that  it  will  be  raised  again.  This  worry,  we  believe,  is  a  major
reason why most central bankers do not wish to raise their inflation objectives.

Another  important  open  issue  is  how  changing  the  inflation  target  would  influence 
inflation  expectations.  The  experience  of  New  Zealand  (which  has  raised  its  inflation 
target  a  couple  of  times)  may  shed  some  light  on  this  issue.  Lewis  and  McDermott 
(2015)  apply  the  Nelson-Siegel  (1987)  model  to  inflation  expectations  data  in  New 
Zealand to generate inflation expectations curves fitted over various time horizons. Such 
curves  suggest  that  changes  to  the  inflation  target  change  inflation  expectations 
significantly.  One  striking  example:  Inflation  expectations  rose  an  estimated  0.45 
percentage point when the target midpoint was increased 0.5 percentage points in 2002. 
However, Kumar et al. (2015) find that inflation expectations of New Zealand business 
managers are not at all well anchored despite twenty-five years of inflation targeting. As 
Blinder (2015, p. 209) put it in discussing their paper, “it reminds us that most people are 
not obsessed about the central bank.”  

 To  summarize,  the  crisis  has  shown  that  central  banks  have  instruments  at  their 
disposal even at the lower bound—which, by the way, is lower than previously thought. 
Both of these “new facts” weaken the case for raising the inflation target. Add credibility 
concerns,  which  are  paramount  with  many  central  bankers,  and  it  becomes  clear  why 
discussions  of  raising  inflation  targets  have  remained  mostly  academic.  As  we  saw  in 
Figure 2, few central banks have considered the idea.  

2.2. What role for financial stability? 

While  central  bankers’  attitudes  toward  the  inflation  mandate  seem  to  have  changed 
little  post-crisis,  attitudes  toward  bringing  financial  stability  into  the  mandate  have 

ECB Working Paper 2047, April 201711MONETARY POLICY AFTER THE CRISIS 

changed a lot. One thing we have surely learned—and should have learned from Japan 
decades  earlier—is  that  sustained  price  stability  is  no  guarantee  of  financial  stability. 
Dangerous financial imbalances can build up under the calm surface of price stability. In 
fact,  several  authors  have  argued  that  monetary  policy  played  an  important  role  in 
creating the crisis by keeping interest rates too low for too long (cf. Taylor, 2009), which 
fueled an asset price boom and spurred financial intermediaries to increase leverage and 
take on excessive risks (Borio and Zhu, 2008). 

Before  the  financial  crisis,  many  central  banks,  especially  the  inflation  targeters, 
thought  they should take  financial  stability  into  account  only  if it affected the  medium 
term outlook for price stability. (Some still believe this.) For example, the central bank 
should respond to asset price declines only after a bubble had burst (Cukierman, 2013; 
Cecchetti, 2016). But several authors (e.g., Cecchetti et al., 2000 and Borio and White, 
2004) argued, even before the crisis, that monetary policy should “lean against the wind” 
because  it  interacts  with  important  drivers  of  financial  imbalances.  That  meant,  in 
particular, being willing to raise interest rates to prevent asset-price bubbles.  

Nowadays,  in  stark  contrast,  many  central  bankers  see  financial  stability  as  an 
important  objective  in  its  own  right  because  the  costs  of  financial  crises  are  large  and 
their  consequences  are  problematic  for  both  price  stability  and  monetary  transmission 
(Laeven, 2016). Our survey results on mandates show this concern quite clearly. 

Early  in  the  crisis  period,  Mishkin  (2008)  and  Blinder  (2008)  took  a  more  nuanced 
position,  arguing  that  not  all  asset  price  bubbles  are  alike.  In  their  view,  credit-driven 
bubbles centered on banks can be highly dangerous. When loans go sour, balance sheets 
of  financial  institutions  deteriorate,  and  lenders  cut  back  on  credit  supply,  thereby 
depressing  business  and  household  spending.  In  contrast,  equity  bubbles—driven  by 
overly optimistic expectations, but not by leverage—pose much less risk to the financial 
system.  A  prime  example  is  the  dot.com  bubble  of  the  late  1990s,  which  left  barely  a 
mark on the real economy. Mishkin (2011) argues that it is much easier to identify credit 
bubbles  than  to  identify  asset-price  bubbles—the  latter  being  a  standard  objection  to 
using interest-rate policy to “lean against the (bubble) wind.”  

Likewise, Borio (2014) argues empirically that policymakers should be able to identify 
the  build-up  of  financial  imbalances  in  real  time  with  a  sufficient  lead,  even  out  of 
sample.11 These findings imply that credit bubbles might be taken as leading indicator of 
a  crisis.  Borio  (2014)  also  notes  that taking  financial imbalances into account  calls  for 
extending  the  policy  horizon  of  monetary  policymaking  beyond  the  typical  two  years 
because the build-up of systemic risks often takes longer than that. 

But it would be incorrect to conclude—from our survey results or anything else—that 
there  is  a  new  consensus  that  monetary  policy  should  play  a  key  role  in  maintaining 
financial stability. Opponents of leaning against the wind raise three main objections. 

First,  many  doubt that,  Borio notwithstanding,  financial  imbalances  can  be  identified 

11 Some BIS studies suggest that the best indicators of financial imbalances and financial cycles are deviations of credit and 
asset prices (especially property prices) from historical trends (cf. Drehmann et al. 2011). Also some research outside the BIS 
suggests that credit is a reasonably good leading indicator. For instance, Jorda et al. (2011), who examine the behaviour of the 
ratio between bank credit and GDP during 200 recessions and the preceding expansions in 14 advanced economies going back 
to 1870, conclude that a stronger increase in this ratio during the boom tends to lead to a deeper subsequent downturn. 

ECB Working Paper 2047, April 201712MONETARY POLICY AFTER THE CRISIS 

with reasonable confidence in time to respond pre-emptively with monetary policy. To 
cite  just  one  such  example,  Klomp  (2010)  concludes  that  while  high  credit  growth, 
negative GDP growth, and high real interest rates are important leading indicators of a 
banking crisis, none of them has a significant impact in more than 60 per cent of banking 
crises.  

Second,  is  monetary  policy  really  the  proper  instrument  to  deal  with  financial 
imbalances? Svensson (2016), for example, argues that the effect of leaning against the 
wind on credit growth may be small and could be of either sign. One reason is that the 
stock of nominal debt has considerable inertia—only a fraction of the stock of mortgages 
turns over each year. Furthermore, even if tighter monetary policy rate slows down the 
rate of growth of nominal debt (the numerator), it also slows down the rate of growth of 
nominal  GDP  (the  denominator).  So  the  debt-to-GDP  ratio  might  even  rise  (see,  for 
instance,  Robstad,  2014).  In  addition,  the  evidence  suggests  that  interest  rates  would 
have to be raised substantially to curb risk taking (Laeven, 2016). 

Third, and finally, Svensson (2016) argues that the full costs of a crisis could be higher 
under  a  policy  of  leaning  against  wind.  Why?  Because  leaning  against  the  wind  will 
make  the  economy  weaker  before  the  crisis.  Svensson  shows  that  this  result  is  quite 
robust  and  holds  for  a  variety  of  alternative  assumptions.  In  addition,  of  course,  the 
diagnosis could be wrong and no crisis occurs.  

Clearly,  opinions  differ  widely  over  whether  and  how  central  banks  should  be 
responsible  for  financial  stability.  Some  central  banks,  or  perhaps  their  governments, 
believe  the  bank  should  be  in  charge  of  both  macro-prudential  policy  and  monetary 
policy so the two policies can be coordinated more efficiently. Figure 3 shows the extent 
to which central banks are, in fact, in charge of macro-prudential instruments according 
to  Claessens  et  al.  (2016).  Most  central  banks  are  either  fully  in  charge  of  all  macro-
prudential policies or not involved at all. Among advanced countries, the latter is more 
common than the former. 

All	107	Sampled	Countries

Emerging/Developing	Economies

Advanced	Economies

0%

25%

50%

75%

100%

=0

>0,…

>1/2,…

=1

Figure 3. Central bank responsibility for macro-prudential policy  
Notes: The graph shows the frequency distribution of the share of macro-prudential instruments 
for which central banks are responsible (zero, half or less but more than zero, more than half but 
less than one, and one). Source: Claessens et al. (2016) 

ECB Working Paper 2047, April 201713MONETARY POLICY AFTER THE CRISIS 

According  to  Fed  Chair  Janet  Yellen  (2014),  “macro-prudential  policies,  such  as 
regulatory  limits  on  leverage  and  short-term  funding,  as  well  as  stronger  underwriting 
standards, represent far more direct and likely more effective methods to address these 
vulnerabilities” than monetary policy.12 In other words, yes, we’re ultimately responsible 
for financial stability, but not by using monetary policy. 

Our  survey  results  (displayed  in  Table  3  below)  show  that  almost  80%  of  governors 
report that their  institution used  some form  of  macro-prudential  policy in  recent  years. 
What  are  these  “other”  (than  interest  rates)  macro-prudential  instruments?  Figure  4 
shows  the  five  instruments  that  were  most  actively  used  in  2013,  according  to  the 
database of Cerutti et al. (2015).  

80%

60%

40%

20%

0%

Loan‐to‐Value
Ratio	Caps

Debt‐to‐Income
Ratio

Limits	on
Interbank
Exposures

Concentration
Limits

Levy/Tax	on
Financial
Institutions

All		Countries

Emerging/Developing	Economies

Advanced	Economies

Figure 4. Most actively used macro-prudential instruments 
Source: Cerutti et al. (2015) 

If we were to suggest, or imagine, a future consensus on financial stability, it might be 
this:  Central  banks  should  pay  more  attention  to  the  build-up  of  financial  imbalances, 
notably credit bubbles. But macro-prudential policies, not monetary policy, should be the 
first line of defense. In normal situations, conventional monetary policy should focus on 
price  stability,  while  macro-prudential  instruments  are  used  to  lean  against  excessive 
credit expansion.  

This  leaves  open  the  issue  of  “who”—whether  the  central  bank  should  be  given  a 
macro-prudential  mandate,  or  whether  this  is  best  done  by  a  separate  body,  restricting 
the central bank to conduct monetary policy. There is consensus that separate tools are 
required  for  the  different  tasks,  but  it  is  also  important  to  consider  the  strategic 
interactions between different policy makers when assigning a role to the central bank, 

12  The  most  extensive  study  to  date  on  the  effectiveness  of  macro-prudential  policies  is  by  Claessens  et  al.  (2016).  Using  a 
newly compiled database for a large number of countries over the 2000-13 period, with information on 12  macro-prudential 
instruments, they report that policies such as limits on leverage and dynamic provisioning are effective restraints, especially 
when growth rates of credit are very high. But they provide less supportive impact in busts. 

ECB Working Paper 2047, April 201714MONETARY POLICY AFTER THE CRISIS 

an issue discussed in Davig and Gürkaynak (2015). 

3. THE EXPANDING TOOLKIT OF MONTARY POLICY

3.1. Leaving the “old normal” behind 

As  the  financial  crisis  deepened,  the  first  reactions  of  central  banks  were  conventional 
and  in  line  with  the  standard  textbook  prescription:  Interest  rates  were  cut,  perhaps  at 
first slowly, but in the end, decisively. For instance, in a coordinated action intended to 
grab  financial  markets’  attention,  the  world’s  leading  monetary  policy  authorities 
reduced  policy  rates  by  50  basis  points  in  early  October  2008.  By  2009,  many  of  the 
world’s larger economies were getting close to the (apparent) lower bound on nominal 
interest rates. It was time to leave the “old normal”.  

One solution, adopted by some, was to decide that the lower bound was not zero (more 
on this below). But changes in the monetary policy toolkit did not stop at the interest rate 
paid  on  bank  reserves.  Our  survey  inquired  about  three  other  novel  measures: 
quantitative  easing  (QE),  forward  guidance,  and  the  macro-prudential  measures  just 
discussed.13 As shown in Table 3, forward guidance has been used by more than 50% of 
the  central  banks  that  responded  to  our  survey.  Quantitative  easing—either  using 
government  debt  or  a  broader  class  of  assets—has  been  used  less  frequently,  although 
some of the responding governors have given it thought.  

We now discuss (negative) policy rates, QE, and macro-prudential tools in more detail, 

leaving forward guidance for Section 4. 

Table 3. Unconventional policies and instruments in reaction to the crisis  

Adopted

Considered,

but rejected 

Not 

considered 

Policy rate(s) near zero (N=49) 

Negative interest rates (N=50) 

QE using government debt (N=49) 

QE using other assets (N=48) 

Forward guidance (N=47) 

28.6 

12.0 

20.4 

12.5 

51.1 

0.0 

10.0 

6.1 

14.6 

10.6 

71.4 

78.0 

73.5 

72.9 

38.3 

Macro-prudential policy (N=47) 

19.2 
Notes: Figures denote percentage of the number (N) of responding central bank governors. Source: 
Authors’ calculations based on survey among central bank governors conducted in 2016. 

78.7 

2.1 

13 Although our questionnaire did not include helicopter money as an instrument, some respondents do mention it as a potential 
instrument. A further point, which we could barely do justice here in a discussion focused on monetary policy, is the role of the 
central bank in micro-prudential supervision, which is also alluded to by some respondents.  

ECB Working Paper 2047, April 201715MONETARY POLICY AFTER THE CRISIS 

3.2. One day, the bottom did drop out: negative policy rates 

Prior  to  the  crisis,  a  zero  lower  bound  on  nominal  interest  rates  seemed  almost 
axiomatic:  Cash,  yielding  a  zero  return,  would  dominate  any  short-term  financial  asset 
with a negative rate, thereby constraining any nominal interest rate to be positive. After 
decades during which rates were nowhere near zero, interest in (and worries regarding) 
the lower bound resurfaced in the 1990s, as Japan continued to struggle with low growth 
and deflation. Presciently, Paul Krugman (1998) asked: “could a liquidity trap happen to 
the  European  Monetary  Union?”  Ten  years  later,  this  question  was  no  longer 
hypothetical.  Since  then  many  central  banks  have  approached,  and  several  have 
breached, the “zero lower bound.” 

How  comfortable  have  central  bankers  become  with  policy  rates  near  or  even  below 
zero? Our survey shows there is still some hesitance. For the full list of unconventional 
instruments, we asked: 

Once conditions return to normal, do you think each of the following should remain a 
potential instrument of monetary policy, remain an instrument but in modified form, be 
discontinued, or that it is too early to judge? 

Regarding policy rates near or below zero, the results are shown in Table 4. 

Table 4. Policy rates in the new normal  

Policy rate(s) near zero (NG=32, NA=157)  

All  AEs 

vs. all 
vs. AEs 
36.3***  12.6*** 

Governors  Academics 

 Chi-sq. 

 Remain potential instrument 
 Remain, but in modified form 
 Be discontinued 
 Too early to judge 

Negative rates (NG=32, NA=156) 
 Remain potential instrument 
 Remain, but in modified form 
 Be discontinued 

 Too early to judge 

43.8  69.2 
0.0 
3.1 
9.4 
0.0 
43.8  30.8 

21.9  38.5 
0.0 
0.0 
7.7 
25.0 

53.1  53.9 

73.3 
2.6 
18.5 
5.8 

52.6 
2.6 
31.4 

13.5 

27.1***  14.9*** 

Notes:  Figures  denote  percentage  of  respondents  (either  central  bank  governors  or  academic 
economists).  ***  denotes  significance  at  the  1%  level,  calculated  using  Chi-square  tests  for  the 
independence  of  the  responses  of  governors  and  academics.  NG  and  NA  denote  the  number  of 
responding governors and academics. Source: Authors’ calculations based on survey conducted in 
2016.  

When asked about the potential future use of policy rates near zero, more than 40% of 
the  governors  say  it  is  “too  early  to  judge.”  This  finding  is  somewhat  surprising,  and 
may suggest that some still see zero as very much a lower bound. In fact, in response to 
the  question  on  negative  rates,  only  22%  would  still  use  them  should  circumstances 
arise. Only around 22% of the responding governors have considered negatives rates in 
recent  years,  while  10%  decided  not  to  implement  them  (see  Table  3).  The  academics 

ECB Working Paper 2047, April 201716MONETARY POLICY AFTER THE CRISIS 

are, perhaps naturally, less cautious. More than 70% think rates near zero should be used 
again, and more than 50% feel negative rates should be in the tool-kit (Table 4). These 
differences between governors and academics are among the starkest that we find in the 
survey responses, no matter whether we focus on all governors in the sample or on those 
from  advanced  economies  (which  provide  a  closer  comparator  group  to  our  sample  of 
academics), as the χ2 statistics in the table attest. 

Digging  a  bit  deeper,  initially  many  central  banks  seemed  uncomfortable  with  going 
all the way to zero in 2008-2009. The Federal Reserve stopped its rate cutting in a range 
between zero and 0.25%. When the Bank of Canada reduced its overnight rate target to 
0.25%  in  April  2009,  it  stated  that  “the  Bank  judged  [this]  to  be  the  effective  lower 
bound  for  that  rate.”  Around  the  same  time,  there  was  discussion  of  whether  the  ECB 
would be  comfortable  with  policy  rates even going below 1%.  However,  as conditions 
continued to deteriorate, further cuts were deemed necessary, and policy rates near zero 
became the norm rather than the exception in crisis-stricken economies.  

For some, zero was not low enough. In July 2009, Sveriges Riksbank lowered its repo 
rate to 0.25%, which pushed the deposit rate for banks below zero. As of fall 2016, there 
is a short list of countries that also pay (in some shape or form) negative rates on central 
bank  lending  facilities.  These  negative  rates  are  generally  not  used  in  isolation,  but 
constitute part of a larger set of unconventional instruments designed to stimulate growth 
and return inflation to target.  

Most  prominently,  the  ECB  has  posted  a  negative  deposit  rate  since  mid-2014  and 
currently  charges  banks  0.4%  on  excess  reserves.  In  January  2016,  the  Bank  of  Japan 
started applying a rate of -0.1% on current accounts held at the central bank. The lowest 
rates so far have been in Denmark and Switzerland, where deposit rates reached minus 
0.75%.  

How  low  could  rates  go?  We  now  understand  that  nominal  rates  can  go  negative 
because  cash  must  be  transported,  stored,  secured,  and  insured.  These  costs  are  non-
negligible, especially for large-scale payments, but neither are they infinite. So far, cash 
demand  has  not  increased  dramatically  in  countries  with  negative  rates,  most  likely 
because retail deposit rates are still positive. However, at some point, further lowering of 
rates may induce people to undertake the switch, especially if interest rates are expected 
to  remain  below  zero  for  prolonged  periods.  According  to  Swiss  National  Bank 
Governor Thomas Jordan (2015, pp. 236-7), “the effective lower bound is below minus 
75 basis points, but it’s very difficult to say exactly where it is.” 

3.3. Mixed views on QE  

When the crisis erupted in 2007, there was little experience with using the central bank 
balance sheet as a policy instrument. The exception was Japan, where the Bank of Japan 
had purchased government bonds on a regular basis between 2001 and 2006 in order to 
increase  the  level  of  bank  reserves.  However,  the  literature  on  this  particular  QE 
program remained far from conclusive on its effectiveness (Spiegel, 2006).  

ECB Working Paper 2047, April 201717MONETARY POLICY AFTER THE CRISIS 

Nevertheless, and although the timing and details differed, four of the world’s largest 
central banks used QE-type policies in response to the financial crisis.14 The Fed and the 
Bank  of  Japan  both  launched  their  initial  programs  in  late  2008,  while  the  Bank  of 
England announced its in January 2009. The Fed would eventually initiate three different 
QE programs between 2008 and 2012 (four if you include “Operation Twist”). The Bank 
of  Japan  also  modified  its  approach  along  the  way,  most  recently  by  introducing  a 
quality dimension to its purchases—the so-called QQE approach. The Bank of England 
has perhaps been most constant in its approach. Throughout the crisis it has continued to 
work within the framework of its Asset Purchase Facility which, among other features, 
puts any risk of loss squarely on HM Treasury. The ECB was the laggard; it waited until 
January 2015 before starting a full-scale QE program.15  

What  do  our  survey  results  say  about  QE?  Most  academics  would  keep  QE  as  a 
potential  instrument  for  monetary  policy  (see  Table  5).  Some  68%  say  QE  using 
government  debt  should  remain  an  instrument,  while  around  11%  would  retain  it  in 
modified form. There is less enthusiasm for QE using assets other than government debt, 
but still roughly half of the academics think it should remain in the toolkit.16  

Table 5. Should QE still be in the toolkit after the crisis?  

Governors  Academics 
All  AEs 

QE using government debt (NG=34, NA=157) 
35.3 
5.9 
20.6 
38.2 

 Remain potential instrument 
 Remain, but in modified form 
 Be discontinued 
 Too early to judge 

53.9 
0.0 
7.7 
38.5 

QE using other assets (NG=31, NA=155) 

68.2 
10.8 
17.8 
3.2 

 Chi-sq. 

vs. AEs  
vs. all 
42.1***  27.9*** 

 Remain potential instrument 
 Remain, but in modified form 
 Be discontinued 
 Too early to judge 
Notes:  Figures  denotes  percentage  of  respondents  (either  central  bank  governors  or  academic 
economists).  ***  denotes  significance  at  the  1%  level,  calculated  using  Chi-square  tests  for  the 
independence of the responses of governors and academics. NG/NA denotes number of responding 
governors/academics. Source: Authors’ calculations based on survey conducted in 2016.  

52.9 
11.0 
29.7 
6.5 

40.0 
0.0 
0.0 
60.0 

29.0 
0.0 
29.0 
41.9 

32.7***  32.1*** 

The  central  bank  heads  in  our  survey  are  far  more  cautious  in  their  interests  in  QE 
going  forward.  Only  41%  think  QE  in  government  debt  should  remain  an  instrument, 
while 21% think it should not, and 38% reserve judgment for now. Note, however, that 

14 We use the term QE in a broad sense. Central banks have at times used a different terminology to describe their policies. For 
instance, Ben Bernanke (2009) described what came to be called “QE1” as “credit easing” rather than quantitative easing. 
15 The Securities Market Program (SMP), designed to address dysfunctional markets in 2010, resembled QE; but its purchases 
were sterilized. 
16 Work on future forms of QE is underway. Reis (2015), for instance, argues that managing the central bank’s balance sheet 
can  help  stabilize  inflation  and  economic  activity  during  a  future  fiscal  crisis,  though  there  are  still  limits  to  what  QE  can 
achieve. 

ECB Working Paper 2047, April 201718MONETARY POLICY AFTER THE CRISIS 

governors  of  central  banks  in  advanced  economies  are  considerably  more  positive  in 
their  assessment.  Some  54%  feel  QE  should  remain  in  the  toolkit,  while  less  than  8% 
think it should not. The sentiment for QE in assets other than government debt is a bit 
weaker, but not by much. The χ2 statistics in Table 5 show that this is another area where 
central bank and academic beliefs differ significantly (regardless of whether we compare 
the  academics  to  the  full  sample  of  governors,  or  to  the  restricted  set  of  those  from 
advanced economies). 

Thus QE has both supporters and detractors. Many critics, both outside and inside the 
central  banking  community,  have  pointed  to  a  list  of  potential  side  effects.  The  lower 
interest  rates  associated  with  QE  could  lead  investors  to  “reach  for  yield,”  thereby 
increasing  risk  taking  and  impairing  financial  stability.  Lower  yields  on  government 
bonds  also  reduce  pressure  on  governments  to  reduce  budget  deficits.  Inequality  rises 
along with rising asset values. There is also the question of whether QE pushes central 
banks across the line into the political sphere. (More on this in Section 5.) One difficulty 
in making judgments about these downsides now is that such potential side effects may 
take time to materialize. Another is that we have yet to experience the full exit from QE 
anywhere. So the overall judgment on QE must be deferred.   

The  academic  literature  initially  focused  on  the  direct  effects  of  QE  on  financial 
markets, especially on interest rates. Here, the evidence is mostly positive: Many papers 
find evidence for declining yields in response to (announcements of) purchase programs. 
At times, the estimated effects are sizeable, especially concerning the initial programs in 
the U.S. and the U.K. For instance, Gagnon et al. (2011) conclude that U.S. longer-term 
rates dropped by up to 150 basis points around QE1 announcements, while Joyce et al. 
(2011) conclude that announcements of gilt purchases by the Bank of England in 2009 
and  2010  reduced  U.K.  yields  by  100  basis  points.  Most  of  the  later  papers  find 
somewhat  smaller  (but  still  non-trivial)  effects  for  QE1  and  especially  for  QE2 
(D’Amico  and  King,  2013,  Krishnamurthy  and  Vissing-Jorgensen,  2011).  Williams 
(2014)  rescales  the  various  estimates  to  a  purchase  of  $600  billion  and  reports  effects 
ranging  between  10  and  100  basis  points,  a  very  wide  range  with,  in  addition,  wide 
confidence intervals. For the ECB’s SMP program, Eser and Schwaab (2016) find large 
announcement  effects  on  yields  of  the  five  targeted  euro  area  countries.  For  actual 
purchases, there are still significant effects, as yields decline by around 3 basis points for 
purchases equal to 1/1000 of the outstanding debt. Altavilla et al. (2015) report that the 
ECB’s  QE  has  significantly  lowered  yields  for  a  broad  set  of  market  segments,  with 
effects that generally rise with maturity and riskiness of assets. For instance, long-term 
sovereign bonds yields declined by about 30-50 basis points at the 10-year maturity and 
by  roughly  twice  as  much  in  higher-yield  member  countries  such  as  Italy  and  Spain. 
Andrade  et  al.  (2016)  find  that  the  announcement  of  the  ECB’s  purchases  program 
reduced  sovereign  yields  on  long-term  bonds  while  also  raising  share  prices  of  banks 
that held more sovereign bonds in their portfolio. 

More recently, the debate has shifted to the transmission of QE from financial markets 
to  the  real  economy.  For  example,  several  Fed  policymakers  have  noted  that  the 
transmission channels of QE to the real economy are not well understood (cf. Rosengren, 

ECB Working Paper 2047, April 201719MONETARY POLICY AFTER THE CRISIS 

2015; Williams, 2014). In a recent review essay, Williamson (2015) bemoans a lack of 
research that “establishes a link from QE to the ultimate goals of the Fed” and notes that 
“casual  evidence  suggests  that  QE  has  been  ineffective  in  increasing  inflation.”  More 
academic work is clearly needed. 

That said, there is increasing evidence that asset purchase programs have modest but 
not negligible effects beyond financial markets—on quantities like GDP and inflation.17 
For instance, Engen et al. (2015) find a peak effect on inflation of 0.5% and a peak effect 
of  unemployment  of  1.25  percentage  points  in  the  Fed’s  macroeconomic  FRB/US 
model. Chung et al. (2012) find slightly larger effects, and emphasize that QE prevented 
the  U.S.  economy  from  falling  into  deflation.  Using  simulation  from  a  large  Bayesian 
VAR-model,  Churm  et  al.  (2015)  conclude  that  the  second  round  of  purchases  by  the 
Bank  of  England  increased  GDP  by  between  0.5%  and  0.8%,  while  inflation  was 
affected  by  at  most  0.6  percentage  points.  Using  a  similar  methodology,  Weale  and 
Wieladek (2016) estimate that announcing purchases of 1% of GDP affects U.S. GDP by 
0.58%,  while  the  effects  for  the  U.K.  are  only  0.25%.  In  a  follow-up  study,  Wieladek 
and  Pascual  (2016)  examine  the  real  effects  of  the  ECB’s  QE  and  conclude  that  in 
absence  of  the  first  round  of  QE,  real  GDP  and  core  CPI  in  the  euro  area  would  have 
been  1.3%-points  and  0.9%-points  lower,  respectively.  The  effect  is  roughly  2/3  times 
smaller  than  those  of  asset  purchase  programs  in  the  UK  and  the  US.  These  are 
substantial effects. 

But  the  effects  of  QE  almost  certainly  depend  on  the  context.  As  one  prominent 
example,  the  Fed’s  purchases  of  mortgage-backed  securities  (MBS)  under  QE1  took 
place  in  a  distressed—indeed  almost  moribund—MBS  market.  But  subsequent  QE 
programs  did  not.  Hence  we  should  expect  stronger  effects  from  QE1  than  from  QE2, 
QE3,  etc.  Analogously,  Goodhart  and  Ashworth  (2012)  argue  that  more  recent  asset 
purchases  by  the  Bank  of  England  were  subject  to  diminishing  returns,  given  that  gilt 
yields had already fallen to very low levels. A similar point was raised when the ECB 
started its full-fledged QE program in 2015, as various euro area government bonds were 
then trading at record low yields. More broadly, how can one disentangle the effects of, 
say,  QE  and  forward  guidance  when  the  two  are  promulgated  together?  As  a  further 
complication, communication on future rates is often accompanied by guidance on future 
QE.  

3.4. Macro-prudential instruments: here to stay, but in what form?  

Given  that  most  of  our  survey  respondents  have  considered  broadening  the  central 
bank’s mandate to include financial stability, it should come as no surprise that many see 
a  continuing  role  for  macro-prudential  instruments.  Roughly  three-quarters  of  the 
respondents, academics as well as governors, believe the macro-prudential element will 
remain a permanent feature in the new normal. Only a small percentage of respondents 
think the use of these instruments should be discontinued (Table 6). Some in this latter 

17 See also IMF (2013), in particular Table 3 of the Appendix, and de Haan and Sturm (2016) for overviews of recent studies. 

ECB Working Paper 2047, April 201720MONETARY POLICY AFTER THE CRISIS 

group find it puzzling that a question on macro-prudential instruments is included in our 
survey, as they do not think it should be a responsibility of the central bank, while others 
find the concept too vague to begin with. Strikingly, as the paltry χ2 statistic shows, the 
views of academics and governors on this issue are statistically indistinguishable. 

Underneath this agreement, however, there is probably less agreement over what forms 
macro-prudential policy should take—which is hardly surprising at this early stage. One 
instrument that is mentioned relatively often are restrictions on consumer lending, such 
as  loan-to-value  ratios  or  debt-to-income  ratios.  But  apart  from  that,  there  are  many 
diverse opinions. Indeed, some central bank governors indicate that measures that were 
initially considered have been discontinued, suggesting that a consensus on the precise 
nature of macro-prudential instruments has not yet been reached.  

Table 6. What role would macro-prudential policy continue to play? 

Governors  Academics 
All  AEs 

 Chi-sq. 
vs. all  vs. AEs 

Macro-prudential policy (NG=47, NA=144) 

1.1 

1.3 

 Remain potential instrument 
 Remain, but in modified form 
 Be discontinued 
 Too early to judge 

76.6  71.4 
14.3 
8.5 
2.1 
0.0 
12.8  14.3 

71.5 
8.3 
5.6 
14.6 

Notes: Figures denotes percentage of respondents (either central bank governors or academic 
economists). NG/NA denotes number of responding governors/academics. Source: Authors’ 
calculations based on survey conducted in 2016. 

ECB Working Paper 2047, April 201721MONETARY POLICY AFTER THE CRISIS 

3.5. Relevant factors in the adoption and evaluation of central bank policies 

The  survey  has  shown  that  central  banks  differ  a  lot  when  it  comes  to  adopting  and 
evaluating  unconventional  monetary  policies.  As  in  the  previous  section,  we  estimated 
some  probit  models  to  understand  these  differences.  We  constructed  a  set  of 
dichotomous  left-hand  variables  for  the  adoption  of  instrument  i  (where  i  is:  interest 
rates near zero, negative rates, QE with government debt, QE with other assets, forward 
guidance,  macro-prudential  policies,  and  “other”).18  To  explain  these  seven  choice 
variables,  we  use  the  same  country  and  central  bank  characteristics  as  in  the  previous 
section—once again starting with univariate regressions (see Table A2 in the Appendix), 
which we use as a guide for parsimonious multivariate regressions. Results are in Table 
7. 

We  find  that  advanced  economies,  countries  that  were  hit  hard  by  the  crisis,  and 
countries with an inflation targeting strategy are more likely to have adopted the various 
instruments—-but  with  some  exceptions.  For  instance,  it  is  quite  remarkable  that 
countries that were not hit by the financial crisis are as likely to have introduced macro-
prudential  policies  as  countries  that  were.  Perhaps  the  view  that  macro-prudential 
policies  are  needed  to  maintain  financial  stability  is  widely  shared.  Or  perhaps  some 
central  banks  introduced  macro-prudential  measures  early  and  efficiently,  thereby 
managing to avoid a severe crisis.  

Table 7. Determinants of instrument adoption 

Adopted 
rates near 
zero 
0.300*** 

Adopted 
negative 
rates 
0.193*** 

(0.076) 

0.122 

(0.097) 

0.125 

(0.102) 

55

0.285 

(0.058) 

0.092* 

(0.056) 

-0.157*

(0.080)

55

0.400 

Adopted 
QE with 
govt debt 
0.201** 

(0.087) 

0.200** 

(0.083) 

-0.015

(0.101)

55

0.262 

Adopted 
QE other 
assets 
0.076 

(0.097) 

0.102 

(0.087) 

-0.102

(0.105)

55

0.114 

Adopted 
forward 
guidance 
-0.052

(0.148)

0.416***

(0.127)

0.338***

(0.105)

55

0.181 

Adopted 
macro 
prudential 
0.099 

(0.135) 

-0.142

(0.148) 

0.260**

(0.126)

55

0.083 

Adopted 
other 
tools 
0.042 

(0.161) 

0.107 

(0.170) 

-0.088

(0.144)

55

0.014 

Advanced  

 Economy 

Hit by crisis  

Inflation  

 Targeting 

Observations 
Pseudo R2 

Notes: The table reports marginal effects of a probit model that explains governors’ responses as to 
whether or not a certain policy instrument has been adopted. Numbers in brackets denote robust 
standard  errors.  */**/***  identifies  statistical  significance  at  the  10%/5%/1%  level.  Source: 
Authors’ calculations based on survey among central bank governors conducted in 2016. 

Table 8 relates the evaluation of a particular instrument to its introduction: Is the truth 
closer to “try it, and you’ll like it” or the reverse? The dependent variable in these seven 
probit models is a dummy equal to one if the central bank intends to keep instrument i in 
its  toolkit  (“remain”  an  instrument  or  “remain,  but  in  modified  form”)  but  zero  if  the 
governor indicates that the instrument will be discontinued or that is too early to judge. 

18 The alternative is either that the central bank considered introducing the instrument but rejected it or did not even consider it. 
We grouped these together. 

ECB Working Paper 2047, April 201722MONETARY POLICY AFTER THE CRISIS 

The results are not only clear—having used a certain instrument leads to a more positive 
assessment  of  it19—but  also  large.  For  instance,  having  implemented  QE  using 
government debt makes a positive evaluation 25 percentage points more likely; having 
used  forward  guidance  raises  the likelihood  of  a  positive  assessment  by  43  percentage 
points.  

Table 8. Determinants of instrument evaluation 

Evaluation 
of rates 
near zero 

Evaluation 
of neg. 
rates 

Evaluation 
of QE 
govt debt 

Evaluation 
of QE oth. 
assets 

Evaluation 
of forward 
guidance 

Evaluation 
of macro 
prudential 

Evaluation 
of other 
tools 

Adopted res-
pective tool 

Observations 
Pseudo R2 

0.411*** 

(0.057) 

55

0.268 

0.166 

(0.114) 

55

0.254** 

(0.124) 

55

0.153 

(0.136) 

55

0.0476 

0.0561 

0.0243 

0.434*** 

0.403*** 

0.352*** 

(0.067) 

(0.029) 

(0.069) 

55

0.188 

55

0.429 

55

0.286 

Notes: The table reports marginal effects of a probit model that explains governors’ responses as to 
whether or not they think a certain policy instrument should remain, or remain in modified form in 
the  central  bank  toolkit.  Numbers  in  brackets  denote  robust  standard  errors.  **/***  identifies 
statistical significance at the 5%/1% level. Source: Authors’ calculations based on survey among 
central bank governors conducted in 2016. 

We  have  also  run  multivariate  regressions,  which  also  include  whether  or  not  other 
instruments have been adopted (see Table A4 in the Appendix). The results suggest that, 
in  most  cases,  only  the  “own  effect”  is  significant  (that  is,  adoption  of  a  particular 
instrument  makes  a  positive  assessment  of  this  instrument  more  likely).  But  there  are 
some exceptions. One notable example is that adopting interest rates near zero makes a 
positive assessment of negative rates more likely. Another example: Adopting QE with 
government debt makes a positive assessment of QE using other assets more likely. In 
both cases, having gone part of the way makes it more likely that an additional step is 
viewed positively. 

Looking at the academics (see Table A3 in the Appendix), our regressions once again 
identify only a few significant regressors. Respondents who have previously worked in a 
central  bank  tend  to  evaluate  QE  using  other  assets  more  positively  and  forward 
guidance  more  negatively;  those  with  an  EME  background  look  less  favorably  on 
forward  guidance  and  macro-prudential  tools.  Even  the  country  patterns  are  not  very 
pronounced,  with  the  exception  of  near-zero  or  even  negative  rates,  which  are  less 
favorably assessed by euro area respondents. One interesting contrast to the governors’ 
results  is  that,  among  academics,  having  implemented  negative  rates  makes  a  positive 
assessment of them less likely. 

19 Although the general conclusion remains, some of these coefficients and their significance are sensitive to how we treat non-
respondents  (non-respondents  are  set  to  zero  both  for  the  regressor  and  the  regressand;  results  of  alternative  treatments  are 
available on request). 

ECB Working Paper 2047, April 201723MONETARY POLICY AFTER THE CRISIS 

4. CENTRAL BANK COMMUNICATION

4.1. On the frequency of central bank communication 

When  we  wrote  our  earlier  survey  of  the  literature  on  central  bank  communication 
(Blinder  et  al.,  2008),  none  of  us  expected  that,  only  few  years  later,  the  practice  of 
central bank communication would be subject to some of the profound changes we have 
seen  since  the  global  financial  crisis.  We  emphasized  then  that  central  bank 
communication  can  be  a  powerful  monetary  policy  tool—a  point  that  would  be 
dramatically demonstrated during and after the crisis by a number of examples in which 
central  bank  talk  had  substantial  effects,  even  without  being  accompanied  by  central 
bank action.  

We asked our survey respondents: “In your view, did the crisis induce the central bank 
to communicate with the public more or less than it did prior to the crisis?”. Similarly, 
we  asked  our academics: “In  your view, did  your  country’s  central bank  communicate 
with  the  public  more  or  less  during  and  after  the  crisis  than  it  had  before?”  An 
overwhelming  majority  of  both  groups  (more  than  80%  of  governors  (and  more  than 
90%  of  those  from  advanced  economies)  and  more  than  90%  of  academics)  feel  that 
communication  intensified  (Table  9).  No  central  bank  governor  reports  to  have 
communicated less during and after the crisis. In brief, greater communication seems to 
be an established fact.  

Table 9. The role of central bank communication during the crisis  

CB has communicated with the public... (NG=55, NA=159) 

14.8** 

2.9 

Governors 

Academics 

 Chi-sq. 

All 

AEs 

vs. all 

vs. AEs 

     Much less 

     Somewhat less 

     No change 

     Somewhat more 

     Much more 

     Difficult to say 

0.0 

0.0 

14.6 

34.6 

49.1 

1.8 

0.0 

0.0 

6.3 

37.5 

56.3 

0.0 

3.1 

0.6 

3.1 

52.8 

39.0 

1.3 

Notes:  Figures  denotes  percentage  of  respondents.  **  denotes  significance  at  the  5%  level, 
calculated  using  Chi-square  tests  for  the  independence  of  the  responses  of  governors  and 
academics.  NG/NA  denotes  number  of  responding  governors/academics.  Source:  Authors’ 
calculations based on survey conducted in 2016.  

4.2. Some extreme examples of communication 

In  July  2012,  ECB  President  Mario  Draghi’s  famous  “whatever  it  takes”  remarks  in 
London  changed  the  financial  world.  Prior  to  those  words,  markets  had  started  pricing 

ECB Working Paper 2047, April 201724MONETARY POLICY AFTER THE CRISIS 

currency  convertibility  risk  into  the  government  bonds  of  several  stressed  euro  area 
countries.  Traders  and  others  started  wondering  out  loud  whether  these  bonds  would 
eventually be repaid in euros or in re-introduced national currencies. Mr. Draghi’s strong 
statement (“Within our mandate, the ECB is ready to do whatever it takes to preserve the 
euro.  And  believe  me,  it  will  be  enough.”20)  and  the  subsequent  announcement  of  the 
ECB’s Outright Monetary Transactions (OMT) Program were sufficient to calm markets 
without a single euro being spent under this program (see Figure 5). 

7

6

5

4

3

2

1

0

‐1

Spain

France

Italy

Figure 5. Government bond spreads 
Notes:  The  figure  shows  10-year  government  bond  spreads  relative  to  Germany  (in  percentage 
points); the bold vertical line denotes the day of Draghi’s “whatever it takes” speech. Source: ECB 

Another example became known as the “taper tantrum”. In spring 2013, Fed Chairman 
Ben  Bernanke’s  first  statements  about  a  likely  deceleration  in  QE  asset  purchases 
(“tapering”) led to (presumably unintended and undesired) strong reactions in financial 
markets,  not  only  in  the  United  States  but  globally,  with  stock  markets  declining  and 
sovereign  yields  increasing  in  several  advanced  economies,  and  emerging  markets 
experiencing  a  reversal  of  capital  flows  and  currency  depreciations.  Yet  the  Federal 
Reserve did not actually begin tapering its asset purchases until January 2014. 

These  two  examples  are  extreme,  but  they  illustrate  the  potential  potency  of  central 
bank communications—which at times apparently are effective even without supporting 
action. In general, however, we think that, in order to be credible, communication needs 
to be backed up by actions—or at least by the ability of the central bank to act if required 
(Blinder et al., 2008). 

20 See https://www.ecb.europa.eu/press/key/date/2012/html/sp120726.en.html.  

ECB Working Paper 2047, April 201725MONETARY POLICY AFTER THE CRISIS 

4.3. Profound changes in central bank communications 

As central banks resorted to unconventional monetary policies, they entered unfamiliar 
and highly complex terrain, with concomitant needs to explain their novel policies more 
fully than ever before. This is a prime example of what we mean by necessity being the 
mother of invention. Indeed, one of these unconventional tools, forward guidance, relies 
entirely on communication. But more communication was also required regarding other 
policies. 

The  crisis,  the  deployment  of  unconventional  monetary  policies,  and  the  broader 
(sometimes tacit) mandates made discussions surrounding the actions of monetary policy 
committees  more  controversial  than  ever.  And  that,  in  turn,  affected  the  way  central 
banks communicated. The need for more and better communication was exacerbated by 
the increasingly public debate over such controversial areas as the possible distributional 
effects of UMP, or the role of the central bank in bailing out financial institutions—or, in 
the case of the euro area, entire governments. For all these reasons and others, there have 
been many changes in central bank communication practices since the crisis. To list only 
a few of the most important ones:  







Both the Federal Reserve and the Bank of Japan introduced a formal inflation
objective  in  early  2012.  Historically,  inflation  objectives  had  been  introduced
following  periods  of  high  and  volatile  inflation  in  an  attempt  to  stabilize
inflation  at  lower  levels  and  to  anchor  inflation  expectations.  In  contrast,  the
inflation  objectives  in  the  United  States  and  Japan  were  introduced  following
periods of low inflation (Ehrmann, 2015).
The Fed has expanded its communication toolkit in various other ways: Since
April  2011,  the  FOMC  chair  holds  regular  press  conferences,  and since 2012,
the Summary of Economic Projections contains a forecast for the Fed’s policy
rate,  in the  form  of  a  “dot  plot”  that  collects  the judgements  of  the individual
FOMC members of the appropriate level of the policy rate over three calendar
years and the longer run.
The Bank of England now releases the minutes of its policy meetings and the
Inflation Reports at the same time as its policy decisions.

 A number of central banks have aired substantially more internal disagreement
since the crisis. The most prominent such example may be the ECB, which saw
its earlier principle of one-voice communication seriously challenged in light of
the  considerable  disagreement  among  its  Governing  Council  members,  and
started releasing regular accounts of monetary policy discussions as of January
2015.

All  of  these  changes  go  in  the  same  direction—towards  more  transparency—a  trend 
which is in line with the evolution we had already observed in our 2008 article and with 
the survey results summarized in Table 9 above. 

Having seen such profound changes in the practice of central bank communication, it 
seems natural to ask to what extent these changes are here to stay. Or will they be scaled 
back once normalcy is restored? Our take is that many of the more structural changes are 

ECB Working Paper 2047, April 201726MONETARY POLICY AFTER THE CRISIS 

here  to  stay.  It  will  be  close  to  impossible,  and  most  likely  also  undesirable,  to  stop 
holding press conferences or publishing minutes. In a similar vein, we would not expect 
the  Federal  Reserve  or  the  Bank  of  Japan  to  abolish  their  inflation  objectives,  though 
their levels might possibly be adjusted (see Section 2). 

This  belief  is  supported  by  the  results  of  our  survey  (see  Table  10).  We  asked  both 
governors  and  academics:  “If  you  answered  anything  other  than  “no  change”  or 
“difficult  to  say”  […  to  the  question  on  whether  there  have  been  changes  to 
communication  since  the  crisis],  do  you  think  these  changes  in  communication  should 
remain, be reversed, or be taken even further once conditions return to normal?” Only a 
minority of our respondents—both governors and academics—sees much chance that the 
changes in central bank communications will be taken back. In fact, a somewhat larger 
minority (about 20%, but only 7% for governors in advanced economies) expect further 
changes towards more communications. Differences in responses between governors and 
academics are small and statistically insignificant. 

Table 10. The role of central bank communication after the crisis 

Governors 

Academics 

 Chi-sq. 

All 

AEs 

vs. all 

vs. AEs 

The crisis-related changes in central bank communication 
will... (NG=45, NA=114) 
     Revert back completely 

2.2 

     Revert back somewhat 

     Remain 

     Go even further 

     Too early to judge 

11.1 

51.1 

20.0 

15.6 

0.0 

20.0 

53.3 

6.7 

20.0 

1.8 

16.7 

55.3 

21.9 

4.4 

6.2 

7.1 

Notes:  Figures  denotes  percentage  of  respondents.  NG/NA  denotes  number  of  responding 
governors/academics. Source: Authors’ calculations based on survey conducted in 2016.  

Table  11  provides  the  results  of  our  regression  analysis  of  the  governors’  responses 
(univariate regression results are again reported in the Appendix, Table A5). Due to the 
nature  of  the  underlying  variable,  we  ran  ordered  probit  regressions  in  this  case,  and 
report  the  marginal  effects  for  the  highest  response  category  (the  central  bank  has 
communicated  “much  more”;  the  changes  will  “go  even  further”)  in  Table  11.  Central 
banks that have had internal discussions about their mandate seem to also have increased 
their external communication efforts, as did those banks that adopted macro-prudential 
tools  or  were  hit  by  the  crisis.  Surprisingly,  the  adoption  of  forward  guidance  has  not 
affected the extent to which communication activities have been expanding.21 

21  We  could  not  identify  statistically  significant  determinants  for  the  forward-looking  assessment.  Nor  was  the  regression 
analysis for the academics (see Table A3 in the Appendix) informative. 

ECB Working Paper 2047, April 201727MONETARY POLICY AFTER THE CRISIS 

Table 11. Determinants of changes in central bank communication 

Communicated more  Will communicate more 

Had internal mandate discussions 

Adopted macro-prudential tools  

Hit by crisis  

Observations
Pseudo R2

0.215* 

(0.119)

0.265** 

(0.133)

0.220* 

(0.131)

54

0.123 

-0.005

-0.118

-0.067

-0.696

-0.059

(0.6.12)

38

0.005

Notes:  The  table  reports  marginal  effects  of  an  ordered  probit  model  that  explains  governors’ 
responses as to the change in central bank communication during the crisis and the expected future 
developments. Coefficients are for the highest category (i.e., “much more” and “go even further”). 
Numbers  in  brackets  denote  robust  standard  errors.  */**  identifies  statistical  significance  at  the 
10%/5%  level.  Source:  Authors’  calculations  based  on  survey  among  central  bank  governors 
conducted in 2016. 

4.4. Forward guidance 

The  most  prominent  change  in  central  bank  communications  has  been  the  more 
widespread use of forward guidance (FG), especially when interest rates are constrained 
at  their  (perceived)  lower  bound.  Under  FG,  the  central  bank  communicates  not  only 
about  the  current  setting  of  monetary  policy,  but  makes  explicit  statements  about  the 
future path of policy. While FG predates the crisis, most prominently in New Zealand, it 
has become much more common since. The reason is straightforward. Monetary policy 
works  not  only  through  the  current  setting  of  policy  instruments,  but  also  through 
expectations  about  the  future  course  of  policy,  which  affects,  among  other  things,  the 
yield curve. Management of these expectations can therefore be a powerful tool once the 
central bank has already lowered short-term rates as much as it can (or wants to). 

Academic  theories  often  translate  FG  into  true  commitment  on  behalf  of  the  central 
bank (cf. Eggertsson and Woodford, 2003). In the terminology of Campbell et al. (2012), 
FG  is  “Odyssean.”  In  practice,  however,  FG  does  not  commit  the  central  bank  to 
anything  (Moessner  et  al.,  2016).  Rather,  it  falls  under  Campbell  et  al.  (2012)’s 
classification  as  “Delphic,”  that  is,  FG  merely  forecasts  the  central  bank’s  future 
behavior,  with  at  most  a  conditional  commitment  that  depends  on  macroeconomic 
developments.  Of  course,  conveying  that  conditionality  to  markets  has  proven 
challenging. 

Following  Filardo  and  Hofmann  (2014),  FG  can  be  classified  into  three  different 

categories 


Qualitative  FG  does  not  provide  exact  indications  as  to  when  or  under  what
conditions the central bank would change its policy rate. For example, in July 2013,

ECB Working Paper 2047, April 201728MONETARY POLICY AFTER THE CRISIS 





the ECB stated that, “The Governing Council expects the key ECB interest rates to 
remain at present or lower levels for an extended period of time”. [italics added] 
Calendar-based FG expresses the likely future path of policy rates as a function of
calendar time. For example, the Bank of Canada used calendar-based guidance in
2009  and  2010,  when  it  stated  that  “conditional  on  the  inflation  outlook,”  it  will
“hold  the  current  policy  rate  until  the  end  of  the  second  quarter  of  2010.”  The
Federal  Reserve  made  similar  calendar-based  statements  intermittently  over  the
years 2011-2015.
Data-based FG states how future changes to policy rates depend on specific new
economic information.  For  example,  at  one  point  the  Fed  maintained that  its  low
policy  rates  were  appropriate  “as  least  as  long  as  the unemployment  rate  remains
above 6.5 per cent, inflation between one and two years ahead is projected to be no
more  than  a  half  percentage  point  above  the  Committee’s  2  per  cent  longer-run
goal, and longer-term inflation expectations continue to be well anchored.”

As we saw earlier in Table 3, forward guidance of some type was adopted by roughly 
half  of  the  central  banks  in  our  sample.  It  was  considered  but  eventually  rejected  by 
another ten percent of the responding  central  bank heads. We  asked  the governors this 
follow-up question: “Forward guidance is often classified as being either calendar based 
(or “time contingent”), data based (or “state contingent”), or purely qualitative (that is, 
providing  neither  a  time  frame  nor  economic  conditions).  Which  type(s)  of  forward 
guidance has your bank employed?”  

 Roughly  speaking,  the three  broad types  were  (almost)  equally  common  (see  Figure 
6). The frequencies add up to 150% because the question allowed for multiple answers, 
and  several  central  banks  switched  among  various  types  of  guidance.  This  monetary 
policy tool is still in its early, experimental phase; to come to a view about the future of 
forward guidance in the central bank toolkit, we need to understand how it has worked in 
practice. 

Several  studies  have  assessed  the  effectiveness  of  FG,  in  three  different  dimensions 
(Filardo  and  Hofmann,  2014).  The  first  is  whether  FG  lowered  expectations  about  the 
future path of policy rates—its most obvious intention. Here the evidence, while mixed, 
is mostly favorable. For the United States, the intended effect is confirmed by Campbell 
et al. (2012), Moessner (2013; 2015) and Woodford (2013)—but less so by Filardo and 
Hofmann  (2014).  For  Canada,  Woodford  (2013)  finds  supportive,  but  overall  weak 
evidence  in  favor,  whereas  the  results  in  Chehal  and  Trehan  (2009)  suggest  that  the 
effects were not long lasting.22 For Sweden, Woodford (2013) shows meager effects on 
longer-term rates, perhaps because of a weaker commitment than in Canada. 

22  This  need  not  be  read  as  evidence  against  the  effectiveness  of  FG,  given  that  the  Bank  of  Canada  always  stressed  the 
conditionality of its FG. 

ECB Working Paper 2047, April 201729MONETARY POLICY AFTER THE CRISIS 

Figure 6. Types of forward guidance used in recent years (Vertical axis denotes % of 
responding central bank heads). 
Notes:  Based  on  replies  of  24  governors  whose  central  bank  used  forward  guidance.  Multiple 
answers  were  possible,  and  a  total  of  35  answers  were  received.  Source:  Authors’  calculations 
based on survey conducted in 2016. 

A  second  issue  is  whether  FG  changed  how  markets  respond  to  macro  news.  Under 
calendar-based  FG,  markets  should  give  less  emphasis  to  the  flow  of  macroeconomic 
news than otherwise. In line with this notion, Swanson and Williams (2014) and Feroli et 
al.  (2016)  find  that  the  responses  of  medium-  and  long-term  yields  to  macroeconomic 
announcements were muted once the Federal Reserve’s FG was in place. 

To  summarize,  there seems  to  be  more evidence pointing to FG being  effective  than 
not.  However,  it  is  important  to  note  that  the  various  empirical  studies  are  subject  to 
substantial identification problems. Even event studies are contaminated by the fact that 
FG  was  typically  used  in  conjunction  with  other  UMPs.  Furthermore,  even  if  we 
conclude that FG has been effective, it was not without problems. Notably, FG had to be 
adapted  over  time  in  most circumstances, e.g.  by moving from calendar-based  to  data-
based FG, or by broadening the data-based criteria. It is therefore important to assess the 
pros and cons of the different types of forward guidance.  

Feroli  et  al.  (2016)  provide  a  critical  discussion  of  calendar-based  FG.  While  the 
muted  market  responsiveness  to  news  under  calendar-based  FG  suggests  that  FG  was 
credible, it also implies that market conditions did not ease in response to negative news, 
which  hampered the  accommodation of  negative  shocks.  However,  by  the  same token, 
positive  macro  news  would  not  lead  to  premature  and  unwarranted  tightening.  More 
generally,  calendar-based  FG  can  put  a  central  bank  in  a  quandary  when  economic 
developments  change  in  an  unexpected  manner.  In  such  cases,  the  bank  must  choose 
between  sticking  with  its  earlier  guidance,  which  may  no  longer  be  appropriate,  or 

ECB Working Paper 2047, April 201730MONETARY POLICY AFTER THE CRISIS 

changing  course,  with  possibly  adverse  consequences  on  its  credibility.  Yes,  strong 
conditionality  is  “the  answer,”  but  as  previously  noted,  it  may  be  hard  to  get  markets 
thinking that way. 

A  different  trade-off  arises  under  data-based  FG.  If  the  central  bank  provides  a 
relatively simple state contingency that is easy to communicate, its message might turn 
out to be too simple in the end, requiring the bank to “renege.” On the other hand, if it 
lists a multitude of indicators to be considered when making its judgement, accurate and 
intelligible  communication  of  the  contingency  might  prove  impossible.  Either  sort  of 
error can damage a central bank’s credibility. 

These problems are not entirely hypothetical. The Federal Reserve’s initial data-based 
FG, emphasizing the unemployment rate, proved problematic. While the FOMC had said 
it  would  not  even  consider  raising  rates  until  unemployment  fell  to  6.5%,  the  markets 
came to (mistakenly) view 6.5% as a trigger for rate hikes. Then, when unemployment 
did  drop  below  6.5%,  it  did  so  partly  for  the  wrong  reason—an  unexpectedly  large 
decrease  in  labor  force  participation.  So  the  Fed  judged  that  lift-off  was  not  yet 
advisable. Eventually, the FOMC removed the unemployment threshold from its FG.  

Similarly,  when  the  Bank  of  England  achieved  its  unemployment  threshold  more 
quickly  than  anticipated,  the  Monetary  Policy  Committee  adjusted  its  FG  to  include  a 
much broader set of conditions. Andrew Sentence, a former member of the committee, 
remarked  in  that  context  that  “The  concept  of  forward  guidance  has  not  delivered.  It 
seems to have been used to support the view that interest rates will not rise, rather than 
preparing the public and business for inevitable hikes.”23 

As with other UMPs, the jury is still out on the effectiveness of FG, especially since 
we  have  little  experience  to  date  with  exit  from  FG.  Bank  of  Canada  Governor  Poloz 
(2014) stresses that FG creates a one-way bet for investors, whose market positions can 
make it more challenging to exit from FG. Especially if one-way FG has been in place 
for a long time, a large unwinding of market positions may be required. In a related vein, 
San  Francisco  Fed  President  John  Williams  has  argued  that  markets  lost  their  “muscle 
memory” for responding to Fed statements during the extended period of extraordinary 
easing and FG by the Federal Reserve,24 suggesting that some financial market volatility 
is to be expected when exiting. 

Still, strong majorities of both governors and academics judge that forward guidance is 
here  to  stay  (Table  12).  As  with  other  instruments,  a  substantial  share  of  governors, 
especially  those  from  advanced  economies,  finds  it  too  early  judge  (in  contrast  to  the 
academic respondents, who don’t). But it is interesting that not a single governor stated 
that forward guidance should be discontinued.  

23 http://www.cityam.com/1407961668/sorry-tale-forward-guidance  
24 http://www.reuters.com/article/us-usa-fed-williams-liftoff-
idUSKCN0SX03U20151108?mod=related&channelName=ousivMolt. 

ECB Working Paper 2047, April 201731MONETARY POLICY AFTER THE CRISIS 

Table 12. The role of forward guidance after the crisis 

Forward guidance (NG=39, NA=156) 

Governors  Academics 
All  AEs 

 Chi-sq. 

vs. all 
vs. AEs 
26.0***  30.3*** 

59.0  50.0 
 Remain potential instrument 
7.0 
 Remain, but in modified form  12.8 
0.0 
 Be discontinued 
0.0 
28.2  42.9 
 Too early to judge 
Notes:  Figures  denotes  percentage  of  respondents.  ***  denotes  significance  at  the  1%  level, 
calculated  using  Chi-square  tests  for  the  independence  of  the  responses  of  governors  and 
academics.  NG/NA  denotes  number  of  responding  governors/academics.  Source:  Authors’ 
calculations based on survey conducted in 2016.  

75.6 
11.5 
9.0 
3.9 

While a consensus about the overall merits of forward guidance seems to be emerging, 
there  is  far  less  agreement  about  the  specific  type  of  FG  that  should  be  pursued  (see 
Table  13).  Our  survey  asked  governors  and  academics  alike:  “In  the  future,  which 
type(s)  of  forward  guidance  do  you  believe  would  be  most  effective  for  your  central 
bank?”25  

Table 13. Preferred types of forward guidance in the future 

Governors 

Academics 

 Chi-sq. 

All 

AEs 

vs. all 

vs. AEs 

Forward guidance in the future (NG=52, NA=158) 
     Calendar based 
     Data based 
     Purely qualitative 
     None 
     Other 

13.5 
26.9 
38.5 
11.5 
15.4 

     Too early to judge 

21.2 

25.0 
25.0 
43.8 

12.5 
25.0 
25.0 

10.8 
68.4 
22.2 
4.4 
3.8 

4.4 

0.3 

2.8* 

27.6***  11.9*** 
5.4** 
3.4* 
8.4*** 

3.7* 
1,9 
12.1*** 

13.9***  10.4*** 

Notes:  Figures  denotes  percentage  of  respondents.  */**/***  denotes  significance  at  the 
10%/5%/1% level, calculated using using Chi-square tests for the independence of the responses 
of governors and academics. NG/NA denotes number of responding governors/academics. Source: 
Authors’ calculations based on survey conducted in 2016.  

Feroli et al. (2016) express a preference for data-based FG, reserving time-dependent 
FG for unusual circumstances. This view is in line with the opinions of our academics, 
two-thirds of whom favor data-based FG. But the central bank governors in our survey 
feel  quite  differently:  Only  about  a  quarter  of  them  favor  data-based  FG.  More  favor 
purely  qualitative  FG.  Repeating  the  exercise  of  Section  3,  we  once  again  find  that 
governors  who  gained  some  experience  with  a  certain  type  of  FG  also  assess  it  more 
positively (see Table 14). 

25 Given that academics had not yet been introduced to the different types of forward guidance, we started this question along 
the same lines as the previous question for central bank governors. 

ECB Working Paper 2047, April 201732MONETARY POLICY AFTER THE CRISIS 

Table 14. Determinants of evaluation of types of forward guidance  

Evaluation 
of calendar-
based FG 
0.254*** 
(0.064) 
55
0.279 

Evaluation 
of data-
based FG 
0.391*** 
(0.032) 
55
0.419 

Evaluation 
of qualitat. 
FG 
0.495*** 
(0.048) 
55
0.368 

Evaluation 
of other FG 

0.318*** 
(0.088) 
55
0.225

Adopted respective 
FG type 
Observations
Pseudo R2

Notes: The table reports marginal effects of a probit model that explains governors’ responses as to 
whether or not they think a certain type of forward guidance is effective. Numbers in parentheses 
denote robust standard errors. */**/*** identifies statistical significance at the 10%/5%/1% level. 
Source: Authors’ calculations based on survey among central bank governors conducted in 2016. 

5. CENTRAL BANKS’ PROPER PLACE IN GOVERNMENT

5.1. In the government or out? 

Word choices can be revelatory. In many countries, a verbal distinction is made between 
“the  government”  and  the  central  bank—as  if  the  central  bank  is  not  part  of  the 
government. Sometimes this separation is even interpreted as a hallmark of central bank 
independence (CBI). But CBI has become the international norm only in recent decades. 
Prior  to  the  1980s,  it  was  hard  to  find  an  independent  central  bank  other  than  in  the 
United States, (West) Germany, and Switzerland.26  For  example,  few European  central 
banks other than the Bundesbank and the Swiss National Bank were independent before 
the Maastricht Treaty required it of prospective members of the monetary union. 

At some level, language suggesting that the central bank is outside the government is 
curious. Congressman Wright Patman, who was chairman of the banking committee of 
the U.S. House of Representatives back in the 1960s, correctly observed that, “A slight 
acquaintance  with  American  constitutional  theory  and  practice  demonstrates  that, 
constitutionally,  the  Federal  Reserve  is  a  pretty  queer  duck.”27  It  remains  true  today.28 
The  American  system  of  government  is  famous  for  its  multiple  layers  of  “checks  and 
balances,” yet the Fed’s monetary policy decisions stand out as notably unchecked and 
unbalanced by any legislative, executive, or judicial authority.29 The case of the ECB is 
even  more  extreme—at  least  on  paper.  Other  than  regular  hearings  at  the  European 
Parliament,  the  ECB  essentially  has  no  government  “above”  it.  Furthermore,  since  the 
ECB’s  structure  and  powers  are  delineated  in  a  treaty,  which  is  nearly  impossible  to 

26 See, for example, Cukierman et al. (1992) and Crowe and Meade (2008). 
27 Quoted in Greider (1987), pp. 49-50.  
28 Cf. Levin (2016) and Conti-Brown (2015). 
29 However, when it comes to other central bank functions, notably bank supervision and regulation, the Fed is both “checked” 
and “balanced” by several other authorities. 

ECB Working Paper 2047, April 201733MONETARY POLICY AFTER THE CRISIS 

amend, no government has the ability to change either aspect of ECB governance.30 This 
situation contrasts sharply with that of the Fed, where the U.S. Congress can change the 
central bank’s governing statutes any day it chooses. 

Traditionally, the issue of whether the central bank is or is not part of the government 
has been elided by appealing to the doctrine of central bank independence in monetary 
policy.  At  least  in  principle,  a  sharp  line  separates  monetary  policy  from  a  long  list of 
functions  collectively  called  fiscal  policy.31  According  to  an  unwritten  (in  most 
countries)  truce,  the  central  bank  is  granted  control  over  monetary  policy  while  the 
elected  government  retains  full  control  over  fiscal  policy.  Importantly,  each  player 
tacitly or explicitly agrees not to poach into the other’s territory. 

There are good reasons for this division of labor. For example, Alesina and Tabellini 
(2008)  argue  that  delegation  of  decision-making  authority  to  non-elected  bureaucrats 
with career concerns (as opposed to politicians) is especially beneficial when the tasks 
are  technical  in  nature  and  monitoring  quality  is  difficult.  That  sounds  like  monetary 
policy.  Another  important  consideration  is  the  extent  to  which  the  policy  is 
redistributive, and thus relies on value judgments and political legitimacy more than on 
technical expertise.32 

5.2. The crisis and “the line” 

The “line” between fiscal and monetary policy seemed at least modestly clear until the 
financial  crisis.  Then  central  banks  around  the  world  were  either  called  upon,  or  felt 
compelled,  to  take  many  actions  they  had  never  (or  rarely)  taken  before.  Think,  for 
example, about lending to banks on a massive scale (not entirely unprecedented, but very 
rare)  against  collateral  that  didn’t  quite  meet  Bagehot  standards—an  action  which  can 
easily  slide  into  a  “bailout”  of  an  imperiled  bank.  Or  lending  to  nonbank  financial 
institutions. Or purchasing non-traditional assets such as mortgage-backed securities (the 
Fed), peripheral country debt (the ECB), and a wide variety of financial instruments (the 
Bank  of  Japan)—just  the  sorts  of  “unconventional”  monetary  policy  instruments  we 
discussed in Section 3.  

Each of these unusual activities shares one attribute in common: There is a non-trivial 
chance  that  the  central  bank,  and  thus  indirectly  the  country’s  taxpayers,  will  suffer  a 
loss.33  For  this  reason,  they  are  often  called  quasi-fiscal  policies,  a  term  that  suggests 
that such actions constitute a kind of government spending, which they do in an actuarial 
sense. Public spending by the central bank crosses the traditional line between monetary 
and  fiscal  policy,  suggesting  to  some  that  the  central  bank  has  strayed  into  the  fiscal 

30 There is, of course, always the possibility—in any democracy—that the central bank’s policies lose popular support, and that 
weakened support undermines the central bank’s independence. 
31 That list extends well beyond macroeconomic stabilization policy. 
32 See Blinder (1997). This view should perhaps be tempered by recognizing that monetary policies have more redistributive 
consequences than are normally acknowledged. 
33  As  an  example  of  an  extreme  version  of  suffering  losses,  Hall  and  Reis  (2015)  discuss  the  implications  of  possible 
(technical) insolvency of the central bank. 

ECB Working Paper 2047, April 201734MONETARY POLICY AFTER THE CRISIS 

domain. A number of writers view this as either an inappropriate or a dangerous position 
for the central bank to be in.34 

During  the  crisis  in  the  U.S.,  politicians  and  the  public  were  surprised  to  learn  how 
much power the Fed actually had. In a famous incident regarding the rescue of insurance 
giant AIG in 2008, Congressman Barney Frank, who then chaired the House Financial 
Services  Committee,  asked  Fed  Chairman  Ben  Bernanke,  “Do  you  have  $80  billion?” 
Bernanke’s answer—“Well, we have $800 billion,” an apparent reference to the size of 
the Fed’s balance sheet at the time—startled Frank. He recalled, “... that’s when many of 
us, for the first time, understood the full scope of this statute.”35 Frank was referring to 
the then-obscure but since-famous Section 13(3) of the Federal Reserve Act, which gave 
the Fed virtually unlimited lending powers under “unusual and exigent circumstances.” 
Tellingly, when the Dodd-Frank Act passed in 2010, Congress limited that power. 

These  sorts  of  actions  led  to  some  withering  criticisms  of  the  Fed.  Consider  these 
words,  written  in  2010  (while  the  crisis  still  raged)  by  Allan  Meltzer,  the  eminent 
historian of the Fed:  

Never  before  had  [the  Federal  Reserve]  taken  responsibility  as  lender-of-
last-resort  to  the  entire  financial  system,  never  before  had  it  expanded  its 
balance sheet by hundreds of billions of dollars or more over a short period, 
and never had it willingly purchased so many illiquid assets that it must hope 
will become liquid assets as the economy improves. Chairman Ben Bernanke 
seemed  willing  to  sacrifice  much  of  the  independence  that  Paul  Volcker 
restored  in  the  1980s.  He  worked  closely  with  the  Treasury  and  yielded  to 
pressures  from  the  chairs  of  the  House  and  Senate  Banking  Committee  and 
others in Congress.36 

In Europe, you didn’t have to look far to find stern critics of, e.g., the ECB’s Securities 
Market  Program—which  bought  sovereign  debt  securities  of  periphery  countries, 
thereby exposing itself to possible losses. For instance, it was widely reported that then-
Bundesbank  President  Axel  Weber,  the  heir  apparent  to  the  ECB  presidency  in  2011, 
took  himself  out  of  the  running  for  that  post  over  just  this  issue.37  Former  top 
Bundesbank/ECB  officials  such  as  Otmar  Issing  and  Juergen  Stark  raised  similar 
objections  publicly,  with  Issing  calling  the  bond-buying  program  “something  very 
dangerous.”38  

Thus, at least a number of astute observers believe that several central banks “crossed 

the line” into fiscal policy during and after the crisis.  

How  do  today’s  central  bankers  and  academic  economists  see  it?  Our  survey  asked 
them,  “In  its  crisis-fighting  efforts,  how  much  criticism  did  your  [country’s]  central 

34 See, for example, Buiter (2014). 
35 The quotations are from Wessel (2009), pp.197-198. 
36 From Meltzer (2010), p. 1243. 
37  Among  many  news  reports  that  could  be  cited,  see  http://www.spiegel.de/international/germany/merkel-ecb-candidate-
german-central-bank-head-axel-weber-resigns-a-745083.html 
38 See, for example, http://www.express.co.uk/news/world/349354/Ex-ECB-chiefs-criticise-bond-buying 

ECB Working Paper 2047, April 201735MONETARY POLICY AFTER THE CRISIS 

bank  get  for  acting  politically  or  crossing  the  line  into  the  political  realm?”39  This 
turned out to be one of the areas of greatest disagreement between the two groups. 

As Table 15 shows, almost half of the central bankers answered “none,” a view shared 
by merely 6% of the academics. At the other end of the spectrum, 72% of the academics, 
but only 31% of the central bank governors, thought that central banks received either “a 
lot”  or  “a  moderate  amount”  of  criticism  for  crossing  the  line  into  politics.  The  two 
groups  might  have  very  different  concepts  of  what  constitutes  “criticism.”  Another 
explanation  could  be  geographical  differences.  Our  central  bank  heads  come  from  all 
over  the  world,  but  the  academics  are  heavily  concentrated  in  advanced  economies. 
However, as Table 15 shows, when we restrict the sample to the advanced economies’ 
governors,  the  differences  between  academics  and  governors,  though  smaller,  are  still 
large and statistically significant. 

Table 15. How much criticism did the central bank receive? 

Governors 

Academics 

 Chi-sq. 

All 

AEs 

CB has received ______ criticism (NG=55, NA=159) 
     None 
     A little 
     A moderate amount 
     A lot 

49.1 
12.7 
14.6 
16.4 

     Difficult to say 

7.3 

31.3 
25.0 
25.0 
12.5 

6.3 

5.7 
18.9 
30.2 
42.1 

3.1 

vs. all 

vs. AEs  

59.8***  16.0*** 

Notes:  Figures  denotes  percentage  of  respondents.  ***  denotes  significance  at  the  1%  level, 
calculated  using  Chi-square  tests  for  the  independence  of  the  responses  of  governors  and 
academics.  NG/NA  denotes  number  of  responding  governors/academics.  Source:  Authors’ 
calculations based on survey conducted in 2016. 

A  look  at  Table  16  shows  that  the  likelihood  to  have  been  criticized  “a  lot”  is 
substantially  larger  in  crisis-hit  countries—hardly  a  surprise.  The  adoption  of 
unconventional  monetary  policy  tools  also  matters.  Our  initial  hypothesis  was  that 
embarking on QE would likely lead to more criticism, but this is only the case with other 
(than  government  debt)  assets.  The  only  other  instrument  that  we  find  to  provoke 
criticism is the adoption of forward guidance. 

Among  the  academics,  the  only  relevant  determinants  of  criticism  are  the  “country” 
fixed  effects,  with  academics  in  the  euro  area  having  a  20  percentage  point  higher 
propensity to answer that their central bank has received a lot of criticism than their U.S. 
peers,  and  academics  in  the  “other”  countries  a  33  percentage  point  lower  propensity 
(see Table A3). 

39 The bracketed word appeared in the academics’ question, but not in the central bankers’ question. 

ECB Working Paper 2047, April 201736MONETARY POLICY AFTER THE CRISIS 

Table 16. Determinants of criticism  

Adopted QE using government debt 

Adopted QE using other assets 

Adopted forward guidance 

Hit by crisis 

Observations
Pseudo R2

Criticism received 

-0.078
(0.071)
0.203**
(0.081)
0.192***
(0.073)
0.156**
(0.079)
51
0.144

Notes:  The  table  reports  marginal  effects  of  an  ordered  probit  model  that  explains  governors’ 
responses as to the amount of criticism that the central bank has received. Coefficients are for the 
highest  category  (i.e.,  “a  lot”).  Numbers  in  brackets  denote  robust  standard  errors.  **/*** 
identifies  statistical  significance  at  the  5%/1%  level.  Source:  Authors’  calculations  based  on 
survey among central bank governors conducted in 2016. 

5.3. Was central bank independence compromised? 

Crossing the line in one direction invites reciprocal crossings in the opposite direction, to 
wit, political interference with monetary policy. Such interference is hard to measure—
indeed,  it  is  probably  not  even  an  objective  phenomena.  (What  is  interference  to  a 
central  banker  might  not  be  interference  to  a  politician.)  And  complaining  about 
monetary policy decisions is nothing new; both politicians and citizens have been doing 
it for centuries. Yet any serious reduction in central bank independence would be a cause 
for concern because much evidence indicates that macroeconomic performance is better 
in countries with more independent central banks.40 So was CBI really compromised? 

We  asked  the  same  exact  question  of  our  central  bankers  and  our  economists:  How 
much  independence  do  you  believe  your  central  bank  either  relinquished,  saw  taken 
away from it, or gained during the crisis? Table 17 shows the results. 

40 See Klomp and de Haan (2010) and de Haan and Eijffinger (2016). 

ECB Working Paper 2047, April 201737MONETARY POLICY AFTER THE CRISIS 

Table 17. Central bank independence during the crisis 

Governors 

Academics 

 Chi-sq. 

All 

AEs 

vs. all 

vs. AEs 

CB independence was ______ during the crisis  (NG=54, NA=158)  34.8***  15.0*** 
     Gained 
     Neither gained nor lost 
     Lost a little 
     Lost a lot 

13.0 
79.6 
1.9 
1.9 

5.1 
43.0 
40.5 
4.4 

0.0 
93.8 
6.3 
0.0 

     Difficult to say 

3.7 

0.0 

7.0 

Notes: Percentages of number of responding governors or academics. *** denotes significance at 
the  1%  level,  calculated  using  Chi-squared  tests  for  the  independence of  responses of  governors 
and  academics.  NG/NA  denotes  number  of  responding  governors/academics.  Source:  Authors’ 
calculations based on survey among central bank governors conducted in 2016. 

Despite  the  high  χ2  statistics,  there  is  more  agreement  here  than  meets  the  eye. 
Specifically, the share of respondents who believe that central bank independence either 
did not  change  or  was  reduced  only  “a  little”  was  more  than  90%  among  central  bank 
governors and more than 80% among academics. Thus the clear answer to the question 
was: Little or none. 

These  subjective  opinions  are  corroborated  by  de  Haan  and  Eijffinger  (2016)  using 
“objective”  data  provided  by  Bodea  and  Hicks  (2015).  These  authors  expanded  the 
Cukierman et al. (1992) index of legal central bank independence for 78 countries from 
the end of the Bretton Woods system until 2010, thereby creating an original data set that 
codes CBI  annually and—importantly  for  current  purposes—covers  changes in the  last 
twenty-five  years.  Table  18  shows  the  average  level  of  legal  CBI  before  and  after  the 
start of the financial crisis for several groups of countries (based on IMF classifications). 
While the index remained stable for the Fed, the ECB and the Bank of England, the data 
suggest that, if anything, CBI increased after 2007. 

Table 18. Legal CBI before and after the Global Financial Crisis 

Advanced economies 

Emerging and developing economies 

 1995-2007

2008-2010 

0.63

0.59

0.69 

0.67 

Source:  de  Haan  and  Eijffinger  (2016)  using  data  from  Bodea  and  Hicks  (2015),  which  are 
available  at:  http://www.princeton.edu/~rhicks/data.html.  The  classification  of  countries  follows 
the IMF’s World Economic Outlook. 

5.4. Back to the status quo ante? 

If  the  crisis  moved  the  line between  the  realms  of  fiscal and  monetary  policy,  perhaps 
inevitably,  was  the  status  quo ante  restored thereafter?  Could it  be?  Should  it  be?  The 
answer to the first question, at least, varies by country. One reason is that the degree to 
which the crisis is “over” also varies from country to country. 

ECB Working Paper 2047, April 201738MONETARY POLICY AFTER THE CRISIS 

In the U.S., the financial storm clouds started lifting already in the spring of 2009, after 
the highly successful stress tests. By late 2010, the crisis could truly be said to be over: 
Risk  spreads  had  returned  to  normal,  Federal  Reserve  lending  was  back  down  to  pre-
Lehman levels, and TARP funds outstanding under the Capital Purchase Program (“the 
bank  bailout”)  were  down  about  85%  from  peak  levels.  Today,  apart  from  its  huge 
balance  sheet,  which  still  includes  over  $1.7  trillion  of  MBS  and  agency  debt,  the  Fed 
has  stepped  back  from  all  of  its  unusual  activities:  the  massive  lending,  the  lending  to 
nonbanks, the bailouts, etc. It is now seeking to normalize monetary policy by raising the 
federal  funds  rate  gradually.  Shrinking  the  balance  sheet,  the  FOMC  has  decided,  can 
wait.  

On the government’s side, the Dodd-Frank Act (2010) clipped the Fed’s wings a bit by 
reducing its emergency lending powers. But other than that, Dodd-Frank mostly gave the 
Fed  more  power,  especially  as  a  regulator.  Furthermore,  most  Americans  assume  that 
policymakers  will  look  to  monetary  policy,  not  fiscal  policy,  the  next  time  the  U.S. 
economy  slumps.  As  a  broad  generalization  then,  the  monetary-fiscal  policy  “line”  is 
almost back to where it was before Lehman Brothers failed.  

Things  are  quite  different,  however,  at  the  Bank  of  Japan  and  the  ECB,  neither  of 
which is yet “exiting,” Nor is the Bank of England, which in response to the outcome of 
the Brexit referendum decided it had to “re-enter.” For these central banks, it is hence far 
too  early  to  guess  whether  the  old  line  between  monetary  and  fiscal  policy  will  be 
restored. 

In particular, just as the ECB seemed to be putting the chaos stemming from the world 
financial  crisis  behind  it,  the  European  sovereign  debt  crisis  erupted  in  the  spring  of 
2010.  The  ECB’s  participation  in  the  troika  for  Greece,  along  with  the  European 
Commission (EC) and the IMF, added an entirely new dimension. The ECB was invited 
to  join  the  troika  in  order  to  advise  the  EC  on  matters  where  it  has  specific  expertise 
(Cœuré,  2014).  While  it  is,  in  contrast  to  the  EC  and  the  IMF,  not  a  signatory  of  the 
agreements with governments, all three institutions should speak with a single voice in 
order to bargain effectively with the Greek government. Indeed, several observers have 
raised  questions  about  the  political  independence  of  the  ECB  in  light  of  this  unusual 
agreement41  and  especially  following  the  ECB’s  decision not to  increase the  ceiling  of 
the Emergency Liquidity Assistance (ELA) to Greek banks in the summer of 2015, after 
negotiations between the troika and the Greek government broke down.42  

It  is  impossible  to  predict  the  long-run  consequences  of  these  developments  at  the 

current juncture.  

41 ECB president Draghi, in his press conference on 7 March 2013, mentions that the organisational setup of the troika “has 
raised questions about the political independence of the ECB.” 
42 See, e.g., Wyplosz (2015) or “ECB ensnared in politics as it faces vote on Bank of Greece loans, Financial Times, 19 May 
2015. 

ECB Working Paper 2047, April 201739MONETARY POLICY AFTER THE CRISIS 

5.5. Is central bank independence under threat? 

In the last Japanese election (2012), we saw the leadership and policies of the Bank of 
Japan emerge as major political issues. In the United States, there are now a variety of 
bills  in  the  congressional  hopper  that  would  change  the  structure,  powers,  and/or 
operations of the Federal Reserve—several of which would undermine its independence. 
In  Europe,  support  for  populist  parties  that  generally  do  not  favour  central  bank 
independence and want to exit EMU and return to national currencies, or even to follow 
the UK and exit the EU, is rising.  

We asked our central bankers and economists virtually the same question: How much 
is  your  central  bank’s  independence  threatened  now  or  in  the  near-term  future?  The 
answers, tabulated in Table 19, are slightly surprising. On an a priori basis, one might 
think  that  central  bank  governors  would  be  hyper-sensitive  to  encroachments  on  their 
independence.  Yet  we  see  far  more  concern  on  the  part  of  academics.  About  37%  of 
them believe that CBI is threatened either “a lot” or “a moderate amount,” whereas only 
9% of central bankers see things that way. At the other end of the worry spectrum, more 
than 60% of central bankers (50% in advanced economies), but only 13% of academics, 
see no threat at all.43 

Table 19. Central bank independence in the near future 

CB independence is threatened ______ (NG=55, NA=159) 

All 

AEs 

vs. all 

vs. AEs 

75.4*** 

25.4*** 

Governors 

Academics 

 Chi-sq. 

     None 

     A little 

     A moderate amount 

     A lot 

     Too early to judge 

61.8 

10.9 

7.3 

1.8 

18.2 

50.0 

12.5 

18.8 

0.0 

18.8 

13.2 

46.5 

27.7 

9.4 

3.1 

Notes: Percentages of number of responding governors or academics. *** denotes significance at 
the  1%  level,  calculated  using  Chi-squared  tests  for  the  independence of  responses of  governors 
and  academics.  NG/NA  denotes  number  of  responding  governors/academics.  Source:  Authors’ 
calculations based on survey among central bank governors conducted in 2016. 

Can we say more about the determinants of past or expected changes to independence? 
Table 20 reports the marginal effects for the lowest category of our dependent variable 
(i.e.  central  bank  independence  was  “gained”  during  the  crisis;  independence  is  “not” 
threatened)  from  an  ordered  probit  model.  One  interesting  question  is  whether  the 
amount  of  criticism  that  the  central  bank  has  received  has  a  bearing  on  threats  to  its 
independence.  For  parsimony,  we  transform  the  corresponding  variable  into  a  dummy 
variable equal to one when the governor has responded that the central bank has received 
“a lot” of criticism. 

43  We  remind  readers,  once  again,  that  a majority  of  our  academics  come  from  the  geographical  areas of  only  three  central 
banks: The Fed, the ECB, and the Bank of England. 

ECB Working Paper 2047, April 201740MONETARY POLICY AFTER THE CRISIS 

Hardly  any  of  our  variables  help  explain  past  changes  in  independence;  having 
adopted QE using other assets is the only one that has some impact. In contrast, looking 
forward,  we  have  strong  evidence  that  the  likelihood  that  a  governor  sees  no  threat  to 
independence is considerably smaller in countries where there was a discussion outside 
the central bank about its mandate, and in countries where the central bank has received 
a  lot  of  criticism.  For  the  academics,  we  cannot  identify  any  patterns  in  our  data  (see 
Table A3). 

Table 20. Determinants of changes to central bank independence 

Change in 
independence 

Expected change in 
independence 

Adopted QE using other assets 

Had external mandate discussions 

Received a lot of criticism 

Observations
Pseudo R2

-0.234*
(0.134)
0.005
(0.073)
-0.059
(0.153)
49
0.0696

0.090 
(0.133)
-0.253**
(0.101)
-0.309**
(0.151)
42
0.140

Notes:  The  table  reports  marginal  effects  of  an  ordered  probit  model  that  explains  governors’ 
responses as to the changes in independence that have occurred during the crisis, or are expected. 
Coefficients are for the lowest category (i.e., “gained” and “none”). Numbers in brackets denote 
robust  standard  errors.  */**  identifies  statistical  significance  at  the  10%/5%  level.  Source: 
Authors’ calculations based on survey among central bank governors conducted in 2016. 

5.6. Conclusions on governance 

Perhaps  inevitably,  the  financial  crisis  pushed  many  central  banks  over  the  traditional 
dividing line between fiscal and monetary policy. Was that costly to the central banks? 
According to our survey results, that depends on whom you ask. Central bank governors 
do  not  believe  they  took  a  lot  of  criticism  for  “crossing  the  line”  into  the  realm  of 
politics, and most do not feel their independence has been or is now threatened. On the 
contrary, a strong majority of central bankers (almost 93%) believe their independence 
was  either  increased  or  did  not  change.  Academics  see  considerably  more  potential 
crossing of the line in the future, and are more worried about threats to CBI. 

This sharp discrepancy of views was both surprising and reassuring to us. The central 
bankers are, after all, on the “front lines.” While geography may be playing some role 
here,  the  discrepancies  remain  stark  even  if  we  restrict  the  comparison  to  advanced 
economy  governors,  who  provide  a  better  comparator  group  to  our  advanced  economy 
academics. 

ECB Working Paper 2047, April 201741MONETARY POLICY AFTER THE CRISIS 

6. SUMMING UP: WHERE DO WE GO FROM HERE?

After reviewing the literature, and documenting the views of central bank governors and
academic economists, what do we conclude? To what extent has the crisis changed the
face of monetary policy?

In  quite  a  few  countries,  the  crisis  seems  not  to  have  affected  the  basic  approach  to
monetary policy in a drastic way. This is most apparent from noting that 70% of central
bank governors did not consider using interest rates near zero, negative rates, or QE in
any form. In that sense, the world of central banking has not changed nearly as much as
concentrating on the Fed, the ECB, the Bank of England, and the Bank of Japan, or, for
that matter, on the academic literature, might indicate.

However,  this  may  well  change.  In  particular,  it  is  striking  that  many  governors  and
academics have reconsidered their central bank’s mandate since the crisis, mostly with a
view to adding financial stability to the mandate. In some cases, the mandate has already
been modified, or preparations are being undertaken in that direction. Given the stability
in central bank mandates over the years prior to the crisis, this constitutes a notable shift.
At the same time, however, there is continuity, as many governors and academics would
not consider changing the target level of inflation.

One big change that was already apparent before 2007, but which was sped up by the
crisis,  is  the  more  active  use  of  communication  by  central  banks.  Here  we  find  the
strongest  agreement  between  governors  and  academics—that  central  banks  have
communicated  much  more  during  the  crisis,  should  certainly  continue  to  do  so,  and
should  perhaps  go  even  further.  These  views  are  corroborated  by  the  large  body  of
evidence that shows the benefits of communication to monetary policy.

The largest unknown is the precise shape and form of the instrument set. First, much is
still  unknown  about  the  costs  and  benefits  of  recent  unconventional  policies—an
uncertainty reflected in the cautious tone of many central bank governors. More research
on forward guidance, QE, and negative rates is therefore needed, especially once we can
assess  how  central  banks  managed  their  “exits.”  Second,  although  many  people  see
macro-prudential  policy  as  the  wave  of  the  future  (or  even  of  the  present),  there  is  no
broad agreement on what forms macro-prudential policy would actually take—which is
hardly surprising at this early stage. As our central bankers frequently said, it is too early
to judge.

Overall, it seems conceivable that monetary policy in the near future will work with a
broadened mandate, which it seeks to fulfil using an extended set of instruments, whilst
communicating  more  actively.  Whether  this  combination  leads  to  “crossing  the  line”
with the government more often remains to be seen—and is important.

ECB Working Paper 2047, April 201742MONETARY POLICY AFTER THE CRISIS 

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ECB Working Paper 2047, April 201750 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
MONETARY POLICY AFTER THE CRISIS 

Table  A5.  Determinants  of  communication,  criticism  and  central  bank  independence 
(univariate ordered probit regressions) 

Adopted rates near zero

Adopted negative rates

Adopted QE govt debt

Adopted QE other assets

Adopted forward guidance

Adopted macro prudential

Adopted other tools

Advanced economy

Crisis (LV dummy)

Inflation targeting

Openness

Flexible  exchange rate

CB independence

Change in CB independence

Changes in 
communi-
cation

0.251**
(0.117)
-0.129
(0.174)
0.103
(0.130)
0.238
(0.178)
0.364***
(0.081)
0.311***
(0.106)
0.128
(0.125)
0.130
(0.128)
0.230*
(0.131)
0.010
(0.127)
-0.000
(0.001)
0.223*
(0.125)
-0.766**
(0.310)
1.567
(1.097)

Expected 
changes in 
communi-
cation
-0.208*
(0.115)
-0.031
(0.190)
0.042
(0.130)
-0.181
(0.125)
-0.077
(0.120)
-0.079
(0.110)
0.227**
(0.103)
-0.173
(0.114)
-0.042
(0.123)
-0.009
(0.106)
-0.000
(0.001)
-0.227**
(0.114)
-0.399
(0.314)
-1.330
(0.880)

Criticism 
received

Change in CB 
independence

Expected 
change in CB 
independence

0.092
(0.082)
0.034
(0.102)
0.109
(0.073)
0.224***
(0.063)
0.235***
(0.078)
0.033
(0.098)
0.092
(0.086)
0.086
(0.075)
0.247***
(0.069)
0.013
(0.083)
-0.001
(0.001)
0.062
(0.083)
0.712**
(0.280)
1.663***
(0.642)

-0.171*
(0.098)
0.373
(0.231)
0.017
(0.125)
0.082
(0.120)
-0.004
(0.081)
0.099
(0.087)
-0.006
(0.085)
-0.170*
(0.098)
0.008
(0.117)
0.016
(0.074)
0.001
(0.001)
-0.171*
(0.098)
0.403
(0.286)
1.525***
(0.506)

0.071
(0.152)
-0.127
(0.161)
-0.072
(0.141)
0.096
(0.181)
0.019
(0.138)
-0.076
(0.131)
0.002
(0.128)
-0.165
(0.119)
-0.086
(0.171)
-0.156
(0.115)
0.001
(0.001)
-0.141
(0.120)
-0.530
(0.348)
-0.818
(1.045)

Notes: The table reports marginal effects of ordered probit models that explain governors’ responses as 
to  the  (expected)  change  in  communications  (left  panel),  the  amount  of  criticism  received  (middle 
panel) and the (expected) change in central bank independence (right panel). Coefficients are for the 
highest category for communication and criticism, and for the lowest category for independence. Each 
coefficient  comes  from  a  separate  regression  using  the  maximum  number  of  observations  for  each 
regressor-regressand  pair.  Numbers  in  brackets  denote  robust  standard  errors.  */**/***  identifies 
statistical significance at the 10%/5%/1% level. Source: Authors’ calculations based on survey among 
central bank governors conducted in 2016. 

ECB Working Paper 2047, April 201751MONETARY POLICY AFTER THE CRISIS 

CENTRAL BANKERS’ QUESTIONNAIRE ON MONETARY POLICY 

I.

CENTRAL BANK GOALS

1.
Did  the  world  financial  crisis  of  2007-2009  and/or  its  aftermath  create
discussions inside your central bank about whether it would be desirable to modify the
bank’s mandate in any way? (please check one)

 Yes  
 No  
 Difficult to say 

2.

If “Yes,” were those discussions about: (please check as many as apply)

 changing the price stability or inflation target 
 replacing price stability or low inflation by some other objective 
  extending  the  mandate  by  adding  some  other  objective  to  price  stability  or  low 

inflation 

 other (please specify): ______________________________________________ 
____________________________________________________________ 

3.
Did  the  world  financial  crisis  of  2007-2009  and/or  its  aftermath  create
discussions  in  your  country  but  outside  your  central  bank  about  whether  it  would  be
desirable to modify the bank’s mandate in any way? (please check one)

 Yes  
 No  
 Difficult to say 

4.

If “Yes,” were those discussions about: (please check as many as apply)

 changing the price stability or inflation target 
 replacing price stability or low inflation by some other objective 
  extending  the  mandate  by  adding  some  other  objective  to  price  stability  or  low 

inflation 

 other (please specify): ______________________________________________ 

_________________________________________________________________ 

(continued)

ECB Working Paper 2047, April 201752 
MONETARY POLICY AFTER THE CRISIS 

II.

CENTRAL BANK INSTRUMENTS

5.
During and after the crisis, a number of central banks adopted or considered
unconventional policies and/or policy instruments they had not utilized before. Please
check below the policies your central bank either adopted, considered but rejected, or
did not consider at all:

Unconventional policy or instrument
Policy rate(s) near zero
(a)

Adopted

Considered, 
but rejected

not 

Did 
consider 

(b)
Negative  interest  rates  (e.g.,  the
policy  rate  or  rate  on  deposits  at  the
central bank)
(c)
government debt

Quantitative 

easing 

using

Quantitative  easing  using  assets

(d)
other than government debt
(e)
monetary policy
(f)

Macro-prudential policy*

Forward  guidance  about  future

(g)

Other**

* If so, please specify: ________________________________________________

___________________________________________________________________ 

**  If so, please specify: ______________________________________________  

__________________________________________________________________ 

(continued)

ECB Working Paper 2047, April 201753MONETARY POLICY AFTER THE CRISIS 

Once conditions return to normal, do you think each of the following should
6.
remain  a  potential  instrument  of  monetary  policy,  remain  an  instrument  but  in
modified form, be discontinued, or that it is too early to judge? (please check one box
per policy/instrument)

Unconventional policy or instrument: 

(a) Policy rate(s) rate near zero

(1)
Remain  an 
instrument

(2)
Remain,  but 
in  modified 
form

(3) 
Be 
discontinued 

(4) 
Too 
early  to 
judge

(b) Negative interest rates (e.g., the policy
rate  or  rate  on  deposits  at  the  central
bank)
(c) Quantitative  easing  using  government
debt
(d) Quantitative  easing  using  assets  other
than government debt
(e) Forward  guidance 
monetary  policy
(f) Macro-prudential policy*

about 

future

(g) Other**

 

If so, please specify:  ____________________________________________ 

__________________________________________________________________ 
**    If so, please specify:  ___________________________________________ 

__________________________________________________________________ 

III.

CENTRAL BANK COMMUNICATION

In your view, did the crisis induce the central bank to communicate with the

7.
public more or less than it did prior to the crisis? (please check one)

 much less 
 somewhat less 
 no change 
 somewhat more 
 much more 
 difficult to say  

(continued)

ECB Working Paper 2047, April 201754MONETARY POLICY AFTER THE CRISIS 

8.
If you answered anything other than “no change” or “difficult to say” just above,
do you think these changes in communication should remain, be reversed, or be taken
even further once conditions return to normal? (please check one)

 revert back completely 
 revert back somewhat 
 remain 
 go even further 
 too early to judge 

Forward  guidance  is  often  classified  as  being  either  calendar based  (or  “time
9.
contingent”), data based (or “state contingent”), or purely qualitative (that  is, providing
neither a time frame nor economic conditions). Which type(s) of forward guidance has
your bank employed? (please check as many as apply):

 Calendar based (time contingent) 
 Data based (state contingent) 
 Purely qualitative (neither time nor state contingent) 
 None 
 Other (please specify): _____________________________________________ 
 Difficult to say 

In  the  future,  which  type(s)  of  forward  guidance  do  you  believe  would  be

10.
most effective for your central bank? (please check as many as apply):

 Calendar based (time contingent) 
 Data based (state contingent) 
 Purely qualitative (neither time nor state contingent) 
 None 
 Other (please specify): ______________________________________________ 
 Too early to judge 

IV.

CENTRAL BANKS AND THEIR GOVERNMENTS

In its crisis-fighting efforts, how much criticism did your central bank get for

11.
acting politically or crossing the line into the political realm? (please check one)

 none 
 a little 
 a moderate amount 
 a lot  
 difficult to say 

(continued)

ECB Working Paper 2047, April 201755MONETARY POLICY AFTER THE CRISIS 

How  much  independence  do  you  believe  your  central  bank  either  relinquished,

12.
saw taken away from it, or gained during the crisis? (please check one)

 gained independence  
 neither gained nor lost 
 lost a little  
 lost a lot 
 difficult to say 

How much is your central bank’s independence threatened now or in the near-

13.
term future? (please check one)

 none 
 a little 
 a moderate amount 
 a lot 
 too early to judge 

==================================================  

Name:   

_____________________________________________________ 

Institution: 

 ____________________________________________________ 

Thank you very much for participating in this survey! 

The completed questionnaire may be returned to any one of these three addresses: 

E-mail

Hard copy

Fax

Please mark envelope ‘Personal & Confidential’ 

Dr. David-Jan Jansen 

Dr. David-Jan Jansen 

Dr. David-Jan Jansen 

d.jansen@dnb.nl

De Nederlandsche Bank 

De Nederlandsche Bank 

Economics and Research Division 

Economics & Research Division 

PO Box 98 

1000 AB Amsterdam 

The Netherlands

+31 – 20 524 2514

ECB Working Paper 2047, April 201756MONETARY POLICY AFTER THE CRISIS 

ECONOMISTS’ QUESTIONNAIRE ON MONETARY POLICY 

=============================================== 

This questionnaire refers many times to “your country’s central 
bank.” If your country of residence is in the euro area, please 
interpret this phrase as referring to the European Central Bank. 

I.

CENTRAL BANK GOALS

1.
Did  the  world  financial  crisis  of  2007-2009  and/or  its  aftermath  lead  you  to
think that it would be desirable to modify the mandate of your country’s central bank
in any way? (please check one)

 Yes  
 No  
 Difficult to say 

Please specify your country of residence: ________________________________ 

2.

If “Yes,” would these modifications apply to: (please check as many as apply)

 changing the price stability or inflation target 
 replacing price stability or low inflation by some other objective 
  extending  the  mandate  by  adding  some  other  objective  to  price  stability  or  low 

inflation 

 other (please specify): ______________________________________________ 

______________________________________________________________ 

______________________________________________________________ 

(continued)

ECB Working Paper 2047, April 201757MONETARY POLICY AFTER THE CRISIS 

II.

CENTRAL BANK INSTRUMENTS

During and after the crisis, a number of central banks adopted or considered
3.
unconventional policies and/or policy instruments they had not utilized before. Once
conditions  return  to  normal,  do  you  think  each  of  the  following  should  remain  a
potential instrument of monetary policy, remain an instrument but in modified form,
be  discontinued,  or  that  it  is  too  early  to  judge?  (please  check  one  box  per
policy/instrument)

(1)
Remain an 
instrument 

(2)
Remain, but in 
modified form 

(3) 
Be 
discontinued 

(4) 
Too early 
to judge 

Unconventional policy or instrument:
(a) Policy rate(s) rate near zero

(b) Negative interest rates (e.g., the
policy rate or rate on deposits at central
bank)
(c) Quantitative easing using
government debt
(d) Quantitative easing using assets other
than government debt
(e) Forward guidance about future
monetary  policy
(f) Macro-prudential policy*

(g) Other**

 

If so, please specify: ____________________________________________ 

___________________________________________________________________ 

**    If so, please specify: _____________________________________________ 

________________________________________________________________ 

(continued)

ECB Working Paper 2047, April 201758MONETARY POLICY AFTER THE CRISIS 

III.

CENTRAL BANK COMMUNICATION

In  your  view,  did  your  country’s  central  bank  communicate  with  the  public

4.
more or less during and after the crisis than it had before? (please check one)

 much less 
 somewhat less 
 no change 
 somewhat more 
 much more 
 difficult to say 

5.
If you answered anything other than “no change” or “difficult to say” just above,
do you think these changes in communication should remain, be reversed, or be taken
even further once conditions return to normal? (please check one)

 revert back completely 
 revert back somewhat 
 remain 
 go even further 
 too early to judge 

6.
Forward  guidance  is  often  classified  as  being  either  calendar  based  (or  “time
contingent”), data based (or  “state  contingent”),  or  purely qualitative  (that  is,  providing
neither  a  time  frame  nor  economic  conditions).  Looking  ahead,  which  type(s)  of
forward  guidance  do  you  believe  would  be  most  effective  for  your  country’s  central
bank? (please check as many as apply):

 Calendar based (time contingent) 
 Data based (state contingent) 
 Purely qualitative (neither time nor state contingent) 
 None 
 Other (please specify) ______________________________________________ 
 Too early to judge  

(continued)

ECB Working Paper 2047, April 201759MONETARY POLICY AFTER THE CRISIS 

IV.

CENTRAL BANKS AND THEIR GOVERNMENTS

In  its  crisis-fighting  efforts,  how  much  criticism  did  your  country’s  central
7.
bank get for acting politically or crossing the line into the political realm? (please check
one)

 none 
 a little 
 a moderate amount 
 a lot  
 difficult to say 

How  much  independence  do  you  believe  your  country’s  central  bank  either

8.
relinquished, saw taken away from it, or gained during the crisis? (please check one)

 gained independence  
 neither gained nor lost 
 lost a little  
 lost a lot 
 difficult to say 

How much is your country’s central bank’s independence threatened now or

9.
in the near-term future? (please check one)

 none 
 a little 
 a moderate amount 
 a lot 
 too early to judge 

=============================================  

Name:   

____________________________________________ 

Institution: 

____________________________________________ 

Thank you very much for participating in this survey! 
The completed questionnaire may be returned to any one of these three addresses: 

E-mail

Hard copy

Fax

Please mark envelope ‘Personal & Confidential’ 

Dr. David-Jan Jansen 

Dr. David-Jan Jansen 

Dr. David-Jan Jansen 

d.jansen@dnb.nl

De Nederlandsche Bank 

De Nederlandsche Bank 

Economics and Research Division 

Economics & Research Division 

PO Box 98 

1000 AB Amsterdam 
The Netherlands 

+31 – 20 524 2514

ECB Working Paper 2047, April 201760Acknowledgements 

Prepared for the 64th Panel Meeting of Economic Policy in Florence, 14-15 October 2016. The paper presents results from a survey 
among heads of central banks and academic economists. We are very grateful for all their contributions. We also thank the editors, our 
referees, Ben Bernanke, Chris Sims, Christiaan Pattipeilohy, Gabriele Galati, Jan Willem van den End, Klaus Adam, Marcel Fratzscher, 
Mark Watson, Mervyn King, and Richhild Moessner as well as seminar and conference participants at the Bank of Canada, de 
Nederlandsche Bank, the European Central Bank, the 48th MMF Group Annual Conference, Brunel University and the University of 
Lisbon for thoughtful comments. We thank Henk van Kerkhoff and Mario Cannella for statistical assistance. This paper was written 
before the second author joined the European Central Bank. Views expressed in this paper do not necessarily coincide with those of the 
European Central Bank, de Nederlandsche Bank, or the Eurosystem. 

Alan Blinder  
Princeton University 

Michael Ehrmann 
European Central Bank, Frankfurt am Main, Germany; email: michael.ehrmann@ecb.europa.eu  

Jakob de Haan 
De Nederlandsche Bank, University of Groningen, and CESifo 

David-Jan Jansen 
De Nederlandsche Bank 

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ISSN  
ISBN  

1725-2806 (pdf) 
978-92-899-2769-7 (pdf) 

DOI 
EU catalogue No 

10.2866/678342 (pdf) 
QB-AR-17-059-EN-N (pdf)