Should investors rely on central bank asset purchases to backstop markets?
Abstract
During the global financial crisis, central banks in advanced economies cut policy rates to near zero, and then provided further stimulus via balance sheet expansion. In many instances this took the form of quantitative easing — central banks creating new money with which to purchase securities. With years of quantitative easing behind us, and aggressive measures from central banks during the COVID-19 pandemic, should investors now expect central banks to backstop financial markets? This paper examines asset purchases from the twin perspectives of monetary and financial stability, and argues that investors should not expect central banks to always come to their rescue.
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Author's Biography
Colin Ellis is a professor of finance at Hult International Business School in London. He has degrees from York University, the LSE and Middlesex University, has held professional roles at the Bank of England, Daiwa Capital Markets, the BVCA and Moody’s Investors Service, and is a Fellow of the RSA. He has published on topics including corporate investment and pricing, data uncertainty, private equity, ratings and financial markets and central banking.
Citation
Ellis, Colin (2023, January 1). Should investors rely on central bank asset purchases to backstop markets?. In the Journal of Risk Management in Financial Institutions, Volume 16, Issue 1. https://doi.org/10.69554/FGQX6172.
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