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.