Central banks adapt strategies to combat economic crises more effectively.
The article suggests a new way to estimate how central banks adjust interest rates when rates are near zero. By focusing on real interest rates and using quantitative easing to influence inflation expectations, the researchers found that central banks changed their reactions during the recent crisis. Both the European Central Bank and the Federal Reserve acted less cautiously, put less emphasis on inflation gaps and money growth, and responded more to asset price inflation. However, they differed in their responses to output gaps and credit growth.