Monetary stimulus has been an important factor in reviving economic growth worldwide following global
economic recession in 2009. These efforts began in 2009 in the form of fiscal and monetary stimulus.
Due to the stretched sovereign debt situation in most of the OECD economies, fiscal stimulus ended
around 2010, with the exception of Japan, and monetary stimulus became the main anchor for reviving
economic growth in these economies. While monetary stimulus has mainly been implemented by low
key interest rates, additional tools were introduced including facilitating funding to the banking industry
and implementing quantitative easing at different magnitude and different stages. These efforts
combined with low interest rates helped industries to benefit from low cost financing.
Monetary stimulus efforts have differed across the various regions. In the US, it played an important role
in reviving the economy. The most recent round of quantitative easing particularly targeted the mortgage
market. This in combination with low interest rates supported the housing market and, as result, allowed
consumers to increase spending while adding to their wealth. In addition, the improvement in the equity
and bond markets also provided another wealth factor for consumers, giving them the confidence to
spend more. This increased spending facilitated job creation, bringing down the unemployment rate
from historical high levels immediately after the crisis to stand at 6.7% in December. This
provided a solid basis for the recovery in the US economy, which is expected to grow by 2.5% this year.
In the Euro-zone, the effectiveness of monetary stimulus was hampered by the diverse structure of the
economies. Due to the high level of sovereign debts, low cost loans could not reach the intended targets
– small and medium sized enterprise – to a sufficient degree. This was because of risk aversions by
commercial banks in the region as well as the need to build their balance sheets in light of expected
regulatory requirements. As a result, the recovery in the Euro-zone remains uneven.
The recent ambitious monetary stimulus measures taken in Japan have been successful in helping the
economy to recover from the lingering impact of the Fukushima triple disaster in 2011. These efforts
included a sharp devaluation of the yen, which boosted exports. Increasing consumer spending also
helped to reverse the long-standing deflationary trend in the economy. An improvement in the housing
market, although still in the early stages, should provide further support.
In the emerging markets, the large monetary stimulus in the developed economies has generally helped
to support the inflow of foreign investment to these markets, although with different paces. The stimulus
has enabled investors borrowing at low cost in the advanced economies to seek higher returns in the
emerging markets. These increased investments, in turn, triggered a sharp rise in demand for
commodities in the developing and emerging economies.
Looking ahead, monetary stimulus is expected to continue, although at a reduced pace compared to
previous years. As long as economic growth remains modest compared to potential and inflation
persists at low levels of below 2%, efforts to strengthen growth in the major OECD countries
will be on-going, providing an important contribution to the global economic recovery.