Should central banks shrink their swollen balance sheets? And, if they do, how should it be done and how far should it go? In the two months since we last addressed this subject the debate has developed further.
For many years it was assumed that official interest rates, as set by central banks, could not go below zero. In recent years this rule – the “Zero Lower Bound” constraint, as it was known – has been decisively broken. How does monetary policy work in the brave new world of negative official interest rates, and what are the longer term implications?