Over the past few months, the world’s central banks have turned to forward guidance as a central focus of monetary policy. This tool is untested as a central component of monetary policy and has been thrust into the spotlight only because we are at or near the zero lower bound. I believe credibility to prevent time inconsistency and markets’ frontrunning central banks will be a major theme going forward. In Europe, default and redenomination risk present special challenges.
Before the crisis, policy rates were much higher everywhere in developed economies. However, the magnitude of the financial crisis caused central banks to slash interest rates aggressively - so much so, that rates can be cut almost no further. Japan was already at the zero lower bound when crisis hi...
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Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator in print and on television for the past decade. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.