Responses of International Central Banks to the COVID-19 Crisis

Jacob Haas, Christopher J. Neely, and William R. Emmons in this research paper have a useful timeline of the 4 central banks:

This article reviews and explains the recent policy reactions of the Federal Reserve, the European Central Bank, the Bank of England, and the Bank of Japan to the financial and macroeconomic turmoil caused by the COVID-19 pandemic. The financial and monetary policy actions of major central banks in the most recent crisis have, by some metrics, surpassed their responses to the Global Financial Crisis of 2007-09 in both swiftness and scope. 


Although the cause of the COVID-19 crisis was quite unlike that of the GFC of 2007-09, many symptoms were similar. For example, both crises spawned flights to safety that produced fire sales of risky assets. Many of the policies to alleviate those symptoms were also similar in kind, but central banks responded with unusual speed and vigor as a result of their post-2008 experience with unconventional policies.

The Fed and BOE cut short-term interest rates, while the ECB and BOJ maintained rates that were already at or below zero. All four central banks introduced or expanded broad asset purchases, special bank-lending facilities, and narrow asset purchase facilities. Extraordinarily, the ECB and BOJ are actually paying negative interest rates on bank borrowing. With the USD and euro playing important roles on international financial markets, the Fed and the ECB expanded swap lines and created repo facilities for international monetary authorities. These measures seemed to be largely successful in maintaining the functioning of financial markets.

The crisis has prompted unprecedented cooperation between fiscal and monetary authorities. Congress appropriated $454 billion for Treasury injections of capital to Fed programs, while the U.K. Treasury offered indemnity on BOE asset purchase and CCFF losses (Timiraos and Hilsenrath, 2020, and Bailey 2020a,b). The Fed, BOJ, and BOE have also designed some of their lending programs to support fiscal authority initiatives. For example, the Fed’s PPPLF and BOJ’s Special Funds-Supplying Operations for SMEs provide funding for banks that use government SME lending programs, encouraging banks to use these fiscal policy programs and lend more to SMEs. Such cooperation may make central bankers nervous about retaining their independence. 


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