Monetary policy responses to Covid-19: a comparison with the 2008 crisis and implications for the future of central banking
The policy responses of major central banks to the Covid-19 financial and economic crisis were faster, larger, and broader in scope than those in response to the 2008 global financial crisis. In this talk I explain in detail the conventional and unconventional measures adopted by the U.S. Federal Reserve and review similar measures adopted by the Bank of England, the Bank of Canada, the European Central Bank and the Bank of Japan. Apart from lowering interest rates and acting as lenders of last resort to financial institutions, these central banks embraced large scale asset purchases as a core crisis fighting tool, with the corresponding expansion in balance sheet that they entail. I argue that this change in emphasis in central bank intervention is connected to the normalization of shadow banking, or market-based financial intermediation, that happened between the two crises. I then explore other changes in the role of central banks made possible by the scope of the policy responses to Covid-19, including the use of central bank digital currencies in the context of a mathematical model for narrow banking.
Bio: Matheus Grasselli is a Professor of Mathematics and Chair of the Mathematics of Statistics Department at McMaster University. He was the Deputy Director of the Fields Institute for Research in Mathematical Sciences from 2012 to 2016 and served as Director of the Fields Centre for Financial Industries from 2017 to 2020. He has a PhD from King's College London and has published research papers on information geometry, statistical physics, and numerous aspects of quantitative finance, including interest rate theory, optimal portfolio, real options, executive compensation, and more recently macroeconomics. He is also the author of an undergraduate textbook on numerical methods. He is a regular speaker in both academic and industrial conference around the world and has consulted for CIBC, Petrobras, EDF, and Bovespa. A member of the editorial board of the Journal of Banking and Finance, the International Journal of Theoretical and Applied Finance, and the Journal of Dynamics and Games, he is also the founding managing editor of the book series Springer Briefs on Quantitative Finance. In 2019, he published his first novel, The Venetian Files - the secret of financial crises, release by Mosaic Press.