An Overview of Central Banks’ Answers to Economic Stimulus Following Covid-19

Abstract

In this paper we discuss the implications of various economic stimulus mechanisms implemented by the United States and EU central banks to combat the economic downturn caused by the Covid-19 pandemic. The huge increase in both the Federal Reserve’s and European Central Bank’s balance sheets using financial tools has led to a distortion of stock markets and government bonds. In turn, this has led to a monumental increase in MZM (deprecated M3) that may prove to be unsustainable. As such, the central banks’ governance bodies have taken steps to provide alternatives to fiat money as a means of last resort.

Keywords

• monetary policy
• financial instability
• fiat money
• inflation
• economic stimulus
• covid-19