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Should investors rely on central bank asset purchases to backstop markets?
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.
The full article is available to institutions that have subscribed to the journal.
Colin Ellis is Visiting Research Fellow at the University of Birmingham and a Managing Director at Moody’s Investors Service. He has published research on topics ranging from quantitative easing, corporate investment and pricing to private equity and data uncertainty. At Moody’s, he is responsible for identifying and analysing the broad macro and credit trends in the EMEA region.
CitationEllis, 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.