Leverhulme Project: Quantitative Easing and how central banks depoliticised monetary policy

In "The Only Game in Town" José Tomás Labarca and I examine why the Bank of England changed its macroeconomic policy stance during the Global Financial Crisis from supporting fiscal stimulus and minor quantitative easing (QE) to endorsing fiscal austerity alongside an increasingly expansive QE programme. While early Monetary Policy Committee (MPC) statements aligned with New Keynesian arguments for counter-cyclical fiscal expansion at the zero lower bound, the Bank publicly reversed course a few months after the crisis reached the British financial markets.

The article shows how central bankers adopted several policy strategies to respond to mounting public and political scrutiny. Faced with criticism over the risks, fairness, and efficacy of QE, Bank officials feared that central-bank legitimacy, authority and independence were under threat. In response, officials developed three strategies to manage politicisation: they designed QE in a way that made the novel instrument appear consistent with pre-crisis technocratic norms; they presented it as functionally equivalent to conventional rate-setting; and they demanded fiscal austerity to reinforce the Bank’s authority and ensure macroeconomic commitment to price stability.

Political economists have long recognized the role of depoliticisation in macroeconomic frameworks during the 1980s. At the time, governments delegated macroeconomic decision-making to technocratic institutions--including central banks--in order to shield economic policy from democratic contestation and short-term political pressures. Our findings highlight that depoliticisation strategies are not over. Instead, they critically structured macroeconomic policy outcomes during and after the Global Financial Crisis. Moreover, we show that depoliticisation does not always result from government strategies. After the Global Financial Crisis central banks themselves actively managed politicisation risks to protect their authority and autonomy.