Modern challenges for the modern bank

The last fifteen years have been characterized by deep structural changes in the economy, some of which are rooted in the global financial crisis of 2008, that led to major economic shocks on both the demand and supply side. Central Banks (CBs) reacted to such shocks by cutting interest rates. Nevertheless, lowering short-term interest rates has led to the so-called zero lower bound. Thus, since 2009, CBs have turned to unconventional monetary policy tools, whose long-term effects are uncertain. This paper seeks to explore current challenges for CBs in advanced economies. The paper analyses the factors that challenged the way monetary policy was conventionally conducted and discusses both the pros and the cons of quantitative easing, forward guidance, negative interest rate policy and yield curve control. For this purpose, the analysis involves empirical evidence and historical examples, suggesting the need to harmonize monetary and fiscal policies.