ABSTRACT
In normal, non-crisis times, monetary policy is a non-spectacular form of economic policy. Some central banks try to dampen the business cycle with anti-cyclical monetary policy that gradually lower interest rates or expand money supply in a recession and gradually increase interest rates or decrease the rate of money growth when the economy is “overheating” and inflation surges. The last two decades have shown that, in a globalized world, the tendencies for crises to be transmitted worldwide has increased substantially. This is due to globally connected financial markets and a very substantial increase in international trade. The Subprime Crisis led to a substantial tightening of financial regulation and supervision and central banks around the globe were called upon to rescue banks. Instead of varying the interest rate at which a central bank lends money, it can change the supply of money it provides to banks as an instrument of monetary policy.
