Since the financial crisis of 2007, central banks have become the central tool of macroeconomic management, being described as the “only game in town.” To avert financial meltdown and, subsequently, to stimulate the economy, they have launched unconventional monetary policies such as quantitative easing (QE). The latter injects huge amounts of liquidity into the economy through large-scale purchases of financial assets by central banks. Central banks have doubled down on QE in reaction to the Covid-crisis.
QE has unintended side-effects. By pushing up the prices of the financial assets purchased, it favours already well-to-do asset holders. Given these consequences, central banks found themselves in the spotlight and pressured to justify their policies.