Schai e , Simon
A icle — Published Ve sion
The con adic ions o uncon en ional mone a y policy as
a pos -2008 hwa ing mechanism: inancial dominance,
shadow banking, and inequali y
Re iew o E olu iona y Poli ical Economy
P o ided in Coope a ion wi h:
Sp inge Na u e
Sugges ed Ci a ion: Schai e , Simon (2024) : The con adic ions o uncon en ional mone a y policy as
a pos -2008 hwa ing mechanism: inancial dominance, shadow banking, and inequali y, Re iew
o E olu iona y Poli ical Economy, ISSN 2662-6144, Sp inge In e na ional Publishing, Cham, Vol. 5,
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1 3
ORIGINAL PAPER
The con adic ions o uncon en ional mone a y policy
asapos ‑2008 hwa ing mechanism: inancial dominance,
shadow banking, andinequali y
SimonSchai e 1
Recei ed: 15 Oc obe 2023 / Accep ed: 29 Ma ch 2024 / Published online: 6 May 2024
© The Au ho (s) 2024
Abs ac
The global inancial c isis (GFC) o 2008 has igge ed p o ound changes in he
mac o- inancial egula o y a chi ec u e. E e since, he in e play be ween poli ical,
ins i u ional, and mac oeconomic de elopmen s has ecei ed inc easing a en ion
in poli ical economy, as in he e olu iona y mac o- inancial app oach o ins i u-
ional supe -cycles wi h i s concep o hwa ing mechanisms. While hese ins i u-
ional s uc u es aim o s abilise he mac o- inancial sys em, hey may also con adic
each o he due o unin ended side e ec s. This pape a gues ha he unde s anding
o hwa ing mechanisms can be en iched by u he in eg a ing i wi h poli ical
economy li e a u e on inance wi hin he pos -GFC ins i u ional se up. I concep u-
alises uncon en ional mone a y policy as a no el hwa ing mechanism and analyses
he con adic o y implica ions o o e all mac o- inancial s abili y wi h a pa icula
ocus on agg ega e demand. I sugges s h ee easons why his hwa ing mechanism
ailed o es o e sus ained economic g ow h in he pos -c isis decade: Fi s , sus ained
la ge-scale asse pu chases pe pe ua e he s uc u al d i e s o inancial dominance in
poli ical powe ela ions, en enching he ole o he shadow banking sys em wi hin
he mac o- inancial o de and impai ing he de elopmen o o he hwa ing mecha-
nisms. Second, uncon en ional mone a y policy main ains he ene s o he in la ion
a ge ing egime and he eby sus ains neolibe al mac oeconomic go e nance wi h
es ained iscal policy. Thi d, i exace ba es p eexis ing weal h and income inequal-
i y by edis ibu ing weal h owa ds asse owne s, unde mines consume demand, and
hus con ibu es o s agna ion endencies. Thus, his pape sugges s ha he con a-
dic ions o his no el pos -GFC hwa ing mechanism con ibu e o weaken economic
g ow h and hus ail o es o e mac o- inancial s abili y.
Keywo ds C i ical mac o- inance· Financial dominance· Inequali y· Mone a y
policy· Poli ical economy· Shadow banking
JEL Classi ica ion E02· E12· E32· E44· E52· E58· G01· G15· G23
Ex ended au ho in o ma ion a ailable on he las page o he a icle
2
S.Schai e
1 3
1 In oduc ion
The global inancial c isis (GFC) o 2008 changed he inancial sys em
undamen ally and pe manen ly. I also ma ked he beginning o a new e a o
hi he o uncon en ional mone a y policy (UMP) o balance shee expansions ha
was u he en enched du ing he Co id-19 inancial c isis (Wullwebe 2020b).
Howe e , hese measu es could only achie e empo al s abilisa ion (IMF 2019)
because he p incipal wo king mechanisms and des abilising con adic ions o
he shadow banking sys em emained la gely un ouched (Tooze 2018). Spo adic
ou b eaks o ma ke u moil such as he epo-ma ke c ash in Sep embe 2019 o
mo e ecen ly he UK gil c isis (Pin e 2023) emind o he inhe en agili y o a
inancial sys em pe manen ly ‘ope a ing in c isis mode’ (Wullwebe 2021b, 12).
Mo e impo an ly hough, cen al banks’ unp eceden ed balance shee expansions
we e unexpec edly unable o es o e sus ained economic g ow h, wi h Eu o a ea
eal GDP emaining p ac ically s agnan du ing he pos -GFC decade, ho e ing
a ound US $16 illion (Wo ld Bank 2023), while US GDP g ow h emained
la gely below i s p ec isis a e ages wi h a sluggish 1.6% compa ed o he almos
double 3.1% be ween 1972 and 2004 (Go don 2015, 55). Al hough long- e m
in e es a es emained low du ing he pos -c isis eco e y pe iod, p oduc i e
in es men did so, oo (Palley 2014; Hein 2016; Tymoigne 2016).
This conund um igni ed a i id deba e among economis s. While he supply-
side- ocused ‘secula s agna ion’ hypo hesis ecei ed much a en ion h ough-
ou he economics mains eam (Eicheng een 2015; Go don 2015), h ee he -
e odox schools o economic hough p o ided al e na i e and con adic ing
in e p e a ions: he Aus ian school o economics among i s ma ke -libe al audi-
ence (Schnabl 2017) deemed ma ke in e en ions and ensuing p ice dis o ions as
main culp i s, while Ma xis (Bonizzi and Powell 2020) and pos -Keynesian (Pal-
ley 2009, 2015; S ockhamme 2015) accoun s a he emphasised demand-side ac-
o s such as aus e e iscal policy and s agnan eal wages, gaining ac ion wi hin
c i ical esea ch and le -wing policy ci cles. This pape chimes in his discussion
o answe he ques ion why UMP ailed o es o e sus ained economic g ow h in
he pos -c isis decade, despi e unp eceden ed balance shee expansions.
I seeks o add o his deba e by ex ending he scope o analysis o poli ical
economy, connec ing key insigh s om i s li e a u e on shadow banking and
mone a y policy (Gabo 2016b; Mu au 2017; Gabo and Ban 2016; Wullwebe
2021a) o demand-side-o ien ed economics explana ions o he p o ac ed c isis
in ad anced capi alis coun ies. In doing so, i also aims o o wa d me hodo-
logical plu alism in economic esea ch by d awing on he c i ical mac o- inance
app oach o ‘ins i u ional supe -cycles’ ha in eg a es insigh s om ins i u ional-
is , e olu iona y, and pos -Keynesian economics wi h poli ical economy (Da e -
mos e al. 2023). This app oach builds subs an ially on he Minskyian concep
o ‘ hwa ing mechanisms’ — ins i u ional s uc u es ha aim o coun e ac he
inhe en ly des abilising endencies o capi alism laid ou in his inancial ins a-
bili y hypo hesis (Fe i and Minsky 1992; Minsky 2008; La oie 2020). How-
e e , he e ec i eness o hese s uc u es o s abilise he mac o- inancial sys em
3
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The con adic ions o uncon en ional mone a y policy asa…
de e io a es o e ime as a esul o he e y same endencies as well as deepe
poli ical and ideological con lic s, equi ing he eme gence o new ins i u ional
s uc u es and spawning a secula pa e n o supe -cycles ha comp ise se e al
s anda d business cycles (Palley 2011).
Ins i u ional supe -cycles di e subs an ially om mos ahis o ical agen -
based mac oeconomic models o pos -Keynesian and e olu iona y economics
(Cal e Jump and S ockhamme 2023) because hey pu he his o ically speci ic
poli ical economy o con ingen ins i u ional de elopmen o he cen e o analysis.
Con e sely, he la e a he ocus on in eg a ing ins i u ions in o mechanic models
ha seek o be uni e sally applicable (Kapelle and Schü z 2014). Thus, he
analysis o his o ically speci ic hwa ing mechanisms can signi ican ly ad ance ou
unde s anding o he p o ac ed c isis in ad anced capi alis coun ies du ing he
pas decade by going beyond pu ely mac oeconomic conside a ions, ex ending he
analy ical scope owa ds ideology, powe ela ions be ween ma ke and s a e, and
inequali y. Howe e , he e has been only li le empi ical elabo a ion on hwa ing
mechanisms beyond i s concep ualisa ion so a , which is why Da e mos e al. (2023,
13) call o ‘ u he esea ch […] on he links be ween mac o- inancial s abili y and
hwa ing mechanisms’.
This pape seeks o ill his gap in he li e a u e, wi h i s key con ibu ion going
beyond Da e mos e al. (2023) being o concep ualise UMP as a new hwa ing
mechanism ha eme ged in he wake o he GFC and explain why i ul ima ely
ailed o s abilise he mac o- inancial sys em in he long un by means o sus ained
economic g ow h. The eby, i goes beyond me ely ecognising he ‘[k]ey ea u es
o he ins i u ional a chi ec u e o he [cu en ] supe cycle’ o ‘weak and “ lexible”
labou , high inequali y and go e nmen e enchmen ’ (Da e mos e al. 2023, 13)
bu a emp s o shed ligh on he speci ic ole ha mone a y policy i sel pa ly plays
in upholding his con igu a ion. In his way, i also adds a new heo e ical angle o
con ibu ions om poli ical economy on he con adic ions o UMP (Wansleben
2023) and ‘cen al bank capi alism’ (Wullwebe 2021b).
In o med by his holis ic heo e ical app oach and empi ical e idence p o ided by
desc ip i e s a is ics om seconda y li e a u e and inancial ins i u ions, i sugges s
h ee easons why UMP ailed o es o e sus ained economic g ow h in he pos -
c isis decade. Fi s , UMP pe pe ua es he s uc u al d i e s o inancial dominance
in socie y by en enching he ole o he shadow banking sys em wi hin he o e all
mac o- inancial sys em. Second, i emains wi hin he neolibe al mac oeconomic
policy pa adigm and hus con ibu es o upholding he impe a i e o iscal aus e i y.
Thi d, i nu u ed he exace ba ion o weal h and income inequali y ia asse p ice
in la ion and he eby con ibu ed o sup ess agg ega e demand.
The emainde o he pape p oceeds as ollows: ‘The poli ical economy o
ins i u ional supe -cycles: hwa ing mechanisms’ sec ion ou lines he ins i u ional
supe -cycles app oach and ope a ionalises he concep o hwa ing mechanisms o
poli ical economy analysis. The ‘Uncon en ional mone a y policy as a new hwa ing
mechanism’ sec ion concep ualises UMP as a new pos -GFC hwa ing mechanism.
The subsequen sec ions analyse i s impac on he mac o- inancial sys em alongside
h ee dimensions: ‘The poli ical economy o uncon en ional mone a y policy and
inancial dominance’, ‘The con inua ion o he neolibe al mone a y- iscal policy
4
S.Schai e
1 3
nexus, and he ‘Dis ibu ional consequences o uncon en ional mone a y policy’.
The ‘Conclusion’ sec ion concludes ha hese concomi an s o UMP pa adoxically
con ibu ed o weaken agg ega e demand and economic g ow h, ailing o es o e
mac o- inancial s abili y and hus he onse o a new ins i u ional supe -cycle.
2 The poli ical economy o ins i u ional supe ‑cycles: hwa ing
mechanisms
The mac oeconomic deba e on he causes o he GFC and he ensuing sluggish
eco e y was accompanied by a c isis o he p o ession o mac oeconomics i sel
(K ugman 2011). Besides c i icism om o he economic schools o hough ,
many also called o mo e heo e ical plu alism and in e disciplina y engagemen
(Dobusch and Kapelle 2012; Sawye 2020), also wi hin in e na ional poli ical
economy (Wullwebe 2018). Da e mos e al. (2023) p o ided such an a emp by
sugges ing a syn hesis be ween ins i u ionalis and e olu iona y app oaches o pos -
Keynesian economics on he one hand and in e na ional poli ical economy on he
o he .
They build upon he Minskyian concep o ‘ hwa ing mechanisms’, a e m used
o desc ibe ‘cus oms, ins i u ions, o policy in e en ions’ ha ame he des abilising
o ces inhe en o capi alism and allow o longe pe iods o ela i e s abili y and
g ow h o e se e al business cycles (Fe i and Minsky 1992, 84). Economic and
inancial c ises do occu du ing hese pe iods, bu hwa ing mechanisms con ain and
p e en hem om becoming sys emic h ough coun e cyclical measu es. Howe e ,
hei e ec i eness de e io a es o e ime due o p o i -seeking inno a ions, as laid
ou in Minsky’s inancial ins abili y hypo hesis (Minsky 2008), and o he , mo e
complex socio-poli ical long- e m p ocesses. Once su icien ly e oded, hwa ing
mechanisms a e ende ed unable o con ain a con en ional ecession inhe en in a
business cycle, which hen de elops in o a sys emic c isis ha can only be o e come
by he de elopmen and implemen a ion o new hwa ing mechanisms and hus
p o ound ins i u ional change. The oscilla ion in mac o- inancial s abili y e oked by
his p ocess b eeds ‘supe -cycles’ ha wo k o e longe ime ames han ‘basic’
business cycles (Palley 2011).
Da e mos e al. (2023, 3) ad ance his concep by laying mo e emphasis
on ins i u ional change and pe iodising ‘ins i u ional supe -cycles’ in o ou
phases: Fi s , du ing expansion, e ec i e new hwa ing mechanisms ha e
been in oduced and allow o s able economic g ow h and poli ical condi ions
wi hou ecessions. Second, du ing ma u i y, e osion o hwa ing mechanisms
se s in, wi h he economy s ill expanding bu mac o- inancial s abili y al eady
declining. Thi d, his e en ually leads o a c isis ha can only be esol ed by,
ou h, he genesis o new hwa ing mechanisms, which is a highly con ingen
and complex socio-poli ical p ocess ha can ail and p olong c isis pe iods.
Based upon his ca ego isa ion, hey de e mine wo pos -wa e a supe -cycles:
Fi s , he indus ial capi alism supe -cycle, and second, he inancial globalisa ion
(FG) supe -cycle. Fu he mo e, o shed mo e ligh on he ole o s abilising
ins i u ions, hey di e en ia ed be ween loo and ceiling hwa ing mechanisms.
5
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The con adic ions o uncon en ional mone a y policy asa…
Floo mechanisms aim o ensu e a minimum le el o agg ega e demand (e.g.,
coun e cyclical iscal policy, deb -led g ow h (S ockhamme 2016)), while ceiling
mechanisms se an uppe bounda y o c edi expansion and possible concomi an
des abilising e ec s (e.g., cu bing p o-cyclical le e age and inancial specula ion
by means o aising in e es a es).
Howe e , he de elopmen o a new se o hwa ing mechanisms can be con a-
dic ing, as ‘policy make s need o […] keep a ange o key mac oeconomic a iables
wi hin ce ain bounds’ o p e en ins abili y, bu ‘mechanisms in oduced o educe
one sou ce o ins abili y may o e ime c ea e o he s, po en ially as a esul o in e -
ac ion wi h o he hwa ing mechanisms’ (Da e mos e al. 2020, 3–4). This may be
ampli ied by he ac ha bo h he selec ion o a ge s o such a iables as well as he
speci ic a chi ec u e o hwa ing mechanisms a e in luenced and shaped by poli ico-
economic powe ela ions and con lic s (Da e mos, e al. 2023, 3). Thus, he deep
social o ces unde lying ideas, ideology, and pe cep ion inhe en o c i ical poli ical
economy (Wullwebe 2018) a e he pi o al d i e o an ins i u ional supe -cycle, and
hwa ing mechanisms o he ocal poin we e con lic s and s uggles, and also, hei
ou comes culmina e. Financial inno a ion and he e olu ion o he egula o y-ins i u-
ional se up a e in e dependen and co-cons i u ing (Palley 2011, 38).
Palley (2011, 38–39) e e ed o he win de elopmen s o inc eased p o i -d i en
isk- aking ac i i ies and ‘ egula o y elaxa ion’ as he wo key o ces o e oding
hwa ing mechanisms. The o me a e d i en by ac o s like inancial inno a ion,
da a hys e esis, memo y loss o pas c ises, and cul u al change. Con e sely, egu-
la ion can be ei he cap u ed by es ed in e es s, elapse due o ein e p e a ion o
his o y and discu si e shi s, o simply escaped by inancial and legal inno a ion
because i acili a es ac i i ies ou side he ealm concei ed by egula ion in he i s
place. This necessi a es cons an upda ing o hwa ing mechanisms and spawns a
dynamic ca -and-mouse game be ween p i a e p o i -seeking ac o s and public egu-
la o s. Fo Palley (2011, 39), ‘good egula ion ine i ably sows he seeds o i s own
des uc ion by p o iding incen i es o inno a e’.
While he ideas o egula o y cap u e, elapse, and escape a e use ul o poli i-
cal economy analysis o hwa ing mechanisms, ecen publica ions om he disci-
pline disag ee wi h he s a e-ma ke dicho omy unde lying his concep . Ins ead, hey
emphasise he complexi y o s a e-ma ke hyb idi y in con empo a y inance (B aun
2020; Wullwebe 2020b). Ins i u ional supe -cycles should igh ly be unde s ood as
a pos -s uc u alis me a-p ocess (Palley 2011, 43) in which e e ybody om p o i -
seeking ac o o egula o and economis ge s cap i a ed by his o he own zei geis
wi hou no icing i . Ye , he pi o al poin a ising ou o his ealisa ion is ha hese
p ocesses a e con ingen and in e dependen , ha is, he causali y nei he uns exclu-
si ely om go e nmen ailu e o inancial ins abili y and c isis no om inancial
inno a ion and egula o y e asion o c isis. Fo example, s a es play a c ucial ole in
es ablishing inancial ma ke s (Helleine 1995) and main aining o ‘secu ing’ inan-
cial ci cula ion (Boy 2017), while ma ke s ha e in u n been cons i u i e o ins i u-
ional inno a ion, oo (Gabo 2016b; B aun e al. 2020). This concep ual uncla i y
abou he ole o s a e-ma ke ela ions in he eme gence and demise o hwa ing
mechanisms is owed o he ac ha he e has hi he o no ye been su icien empi i-
cal analysis o hese p ocesses beyond concep ual conside a ions.
6
S.Schai e
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Going beyond his cu en s a e o esea ch, I a gue ha UMP adds a no el ceil-
ing and loo hwa ing mechanism o he mac o- inancial sys em, namely in i s unc-
ion as a ma ke -make o las eso (MMLR) (Meh ling 2011), as well as ia i s long-
e m asse pu chasing p og ammes (APPs) in he a e ma h o he GFC. This ma ks
a depa u e om i s unc ion as a ceiling and a loo hwa ing mechanism du ing he
heyday o he FG supe -cycle: As a ceiling, in la ion a ge ing aimed o cu b exces-
si e c edi c ea ion by he banking sys em and hus o es all he buil -up o specula i e
bubbles. As a loo , cen al banks’ lende -o –las eso (LOLR) backs opped deb -led
g ow h by p e en ing liquidi y and hus c edi o d y up du ing c ises (Da e mos e al.
2023). UMP also eme ged as an ins i u ional inno a ion in esponse o shadow bank-
ing, ha is, ‘money ma ke unding o capi al ma ke lending’ (Meh ling e al. 2013,
2), inanced by colla e al-based liquidi y c ea ion ia epo ma ke s in which adable
secu i ies a e pos ed as colla e al o ob ain unds. I is a inancial inno a ion ha unde -
mined he FG supe -cycle’s ceiling hwa ing mechanisms and simul aneously played a
c ucial ole o he loo hwa ing mechanism o deb -led g ow h: By acili a ing c edi
g ow h ou side he egula ed banking sys em a ge ed by mone a y policy, i enabled
banks o ci cum en caps on liquidi y c ea ion and le e age ia i s sys em o colla e al-
based liquidi y p o ision (B unne meie and Pede sen 2009; Ad ian and Shin 2010;
Gabo 2016b) — and inance consume -deb expansion (Fe nandez and Wigge 2016;
Ca e zasi e al. 2019).
By d awing on his empi ical example, his pape a gues ha economics and poli ical
economy esea ch may p o i subs an ially om he concep o hwa ing mechanisms,
as i p o ides a c ucial hinge be ween bo h disciplines: I enables he analysis o
he in e play o he egula o y amewo k (mone a y policy), inancial inno a ion
(shadow banking), and i s impac on he mac o- inancial sys em in a sophis ica ed ye
no de e minis ic o mechanis ic manne . Thus, his pape o e s a poli ical economy
pe spec i e o be e unde s and he ole o powe , ideas, and ideology in his p ocess,
building on a pos -Keynesian concep ualisa ion o money, inance, and economics
while a he same ime embedding hese phenomena in o a poli ical and ins i u ional
amewo k ha in e ac s wi h he dynamics i en ails, balancing s uc u e and agency
(Wullwebe 2014). C ucially, i also sheds mo e ligh on he con adic ions o hwa ing
mechanisms beyond hei impac s on mac oeconomic a iables, which has been he
main ocus o he wo k o Da e mos e al. (2023), and ins ead augmen s analysis o
poli ical economy ca ego ies such as ideology, s a e-ma ke ela ions, and inequali y
and he ole ha ins i u ions hemsel es play in nu u ing o pe pe ua ing ce ain
con adic ions.
To his end, he spa io empo al scope o analysis will be con ined o he pe iod
s a ing om he GFC 2008 in ad anced capi alis coun ies, in pa icula zooming
in on he cases o he Fede al Rese e (Fed) and Eu opean Cen al Bank (ECB), wi h
spo adic e e als o he Bank o England (BoE).
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The con adic ions o uncon en ional mone a y policy asa…
3 Uncon en ional mone a y policy asanew hwa ing mechanism
In 2008, he FG supe -cycle en e ed in o a sys emic c isis due o an e osion o i s
majo hwa ing mechanisms (Da e mos e al. 2023). In la ion a ge ing h ough
policy- a e se ing in unsecu ed in e bank money ma ke s and Basel II egula ion
mainly ocusing on minimum capi al equi emen s o comme cial banks we e
unable o pu a cap o ceiling on c edi and liquidi y expansion. Indeed, he shadow
banking sys em acili a ed he ci cum en ion o he s ipula ions o his egula o y
amewo k (Young 2014), posing an example o egula o y escape. Simul aneously,
he loo hwa ing mechanism o deb -led g ow h ha d o e he economic
expansion du ing he p eceding decades by inc easing le e age and acili a ing deb
ia shadow banking ceased o unc ion (Fe nandez and Wigge 2016; S ockhamme
and Wildaue 2016), illus a ed by he collapse o secu i isa ion o consume deb
and i s e inancing in wholesale money ma ke s (Lysand ou and Nes e ailo a 2015).
Following his c isis, he FG supe -cycle en e ed in o i s genesis phase in sea ch
o new hwa ing mechanisms, spea headed by cen al banks’ c isis inno a ions in
wha would become known as ‘uncon en ional mone a y policy’ (Bowdle and Radia
2012). Al hough looking he same a i s sigh , he immedia e asse pu chases in he
wake o he GFC unde lay a di e en logic han he subsequen long- e m pu chases
ha became p ominen as quan i a i e easing (QE). While he sho - e m aim o he
o me was o o es all sys emic collapse and se policy a es (MMLR), long- e m
asse pu chasing p og ammes (APPs) in ended o ein igo a e he ansmission o
mone a y policy a es and encou age po olio ebalancing o s imula e economic
Fig. 1 Agg ega e balance shee ex ensions o majo cen al banks. Sou ce: Fede al Rese e Economic
Da a, Fede al Rese e Bank o S . Louis (2023a, b, c)
8
S.Schai e
1 3
g ow h (Gabo 2021). Figu e 1 shows he ex en o agg ega e asse pu chases o
majo cen al banks om 2008 onwa ds.
To unde s and he a ionale unde lying MMLR, i is c ucial o conside he colla -
e al-based cha ac e o he shadow banking sys em. I s eme gence was acili a ed by
he expanding use o epu chase ag eemen s ( epos) o liquidi y c ea ion in money
ma ke s om he 1970s onwa ds ha ende ed hem new sys emic liabili ies which
de ac o ul il he ole o money p ope (i.e., ese es) o he o e all sys em, includ-
ing adi ional comme cial banks (Gabo and Ves e gaa d 2016; Mu au 2017; Wull-
webe 2021a). Since his ole essen ially hinges on ma ke liquidi y o unde lying
colla e al asse s — p eponde an ly go e nmen secu i ies — pe manen cen al bank
in e en ion and backs ops a e needed o s abilise he inancial sys em by ensu ing
epo colla e al liquidi y (Wullwebe 2021b).
Du ing he GFC, cen al banks ac ing as a MMLR aimed o ensu e liquidi y in
colla e al ma ke s ha unde lie epo ansac ions by buying and selling secu i ies
acco ding o ma ke needs because p i a e ma ke -make s such as secu i ies deale s
wi hd ew om hose ma ke s (Meh ling 2011). Howe e , du ing a c isis, MMLR
mainly amoun s o buying up secu i ies o pu a ‘lowe bound’ unde he p ice o sa e
asse s ha se e as colla e al in o e nigh epo ma ke s (Meh ling e al. 2013, 10).
Du ing he GFC, he Fed did so by e ec i ely ‘mo ing he wholesale money ma ke
on o i s own balance shee ’ (Meh ling 2011, 125). This scena io la gely epea ed
i sel du ing he Co id-19 inancial c isis, wi h he Fed p o iding c edi di ec ly o
shadow banks and he o e nigh epo ma ke being backs opped by epo and e e se
epo acili ies (Wullwebe 2020b), he la e o which p o ided ‘an impo an elease
al e o apidly ising money ma ke und (MMF) cash balances amid he su ge
in demand o sa e in es men oppo uni ies’ (BIS 2020). The BoE, he ECB, and
many o he majo cen al banks oo ac ed as MMLR in epo ma ke s du ing he GFC
and i s a e ma h (BIS 2014). Thus, c isis-d i en MMLR augmen ed LOLR as a key
loo hwa ing mechanism.1
Howe e , he e also exis s an ou side-c isis dimension o MMLR ha aims o s a-
bilise epo a es by suppo ing colla e al alues and abso bing excess liquidi y. Cen-
al banks now assume a cons an backg ound ole in epo ma ke s h ough which
‘ma ke liquidi y is sus ained e e y day because unding liquidi y is elas ically o h-
coming in his way’ (Meh ling 2011, 104). The ac ha MMLR is a pe manen ly
necessa y new ea u e o UMP was soon acknowledged o a leas ac ed upon by
majo cen al banks (Gabo 2016b). In 2013, he Fed es ablished a pe manen O e -
nigh Re e se Repu chase Ag eemen Facili y (ON RRP) in addi ion o i s open
ma ke ope a ions (OMOs) h ough which i p o ides liquidi y h ough epos by
o e ing colla e al agains ese es and ice e sa (Pozsa 2015). In 2015, he BoE
wen one s ep u he by o icially o malising i s MMLR ope a ions, and al hough
he ECB has no done so, i s ou igh mone a y ansac ions ‘a e in e ec a ma ke -
making commi men o colla e al ma ke liquidi y ha suppo s sa e asse s a us o
pe iphe y so e eign bonds and he moneyness o shadow eu os [ epo liabili ies]’
1 Albei no supe seding LOLR en i ely, as he con ainmen o he US banking c isis in Ma ch 2023
showed (Smi h e al. 2023).
15
1 3
The con adic ions o uncon en ional mone a y policy asa…
dominance’ (Blommes ein and Tu ne 2012): he mone isa ion o so e eign deb by
cen al banks ha ga e iscal au ho i ies ample leeway du ing he pos -wa e a when
mone a y policy was subo dina ed and elega ed o a acili a ing ole o iscal pol-
icy. In ac , he ‘mone isa ion o go e nmen deb is no longe a aboo’ (Gabo 2021,
3), as a numbe o ins i u ions ha once we e s ong ad oca es o iscal p obi y such
as he OECD now call o a mo e ac i e iscal policy s ance o comba economic
s agna ion and ‘wa n go e nmen s o e hink cons ain s on public spending’ (Giles
2021). Co espondingly, ECB P esiden Ch is ine Laga de ankly s a ed ha bal-
ance shee ex ensions lead o an ‘ine i able s eng hening o he in e play be ween
mone a y and iscal policies’ ha ‘wo ks bo h ways’ (Laga de 2020). This has led o
ehemen c i ique and e en he allega ion o illegal mone a y inancing on he pa
o he ECB (Ba eman and Kloos e 2023), culmina ing in a judgmen by he Ge man
Cons i u ional Cou uling ha ECB’s go e nmen bond APP (and hus he Bundes-
bank’s pa icipa ion in i ) iola e EU law because he ECB manda e s ipula es ha i
mus no in e e e wi h iscal policy.
Howe e , he ac ual pic u e is mo e complica ed han hese c i iques insinu-
a e. Fi s o all, he p oclaimed sepa a ion be ween mone a y and iscal policy was
always a he an ideal image o he neolibe al pa adigm han ac ual policy p ac ice
and ne e absolu e (Kloos e and Fon an 2020). While i is ue ha iscal au ho i-
ies ac oss ad anced capi alis coun ies ound hemsel es in an inc easingly ie ce
compe i ion o in e na ional in es o s a e he u n owa ds cen al bank independ-
ence eed he la e om i s legal obliga ion o mone ise go e nmen deb , iscal
au ho i ies also sea ched o o he ways o ensu e s eady demand and liquidi y in
go e nmen bond ma ke s. By he la e 1990s, minis ies o inance began o libe -
alise hei bond and epo ma ke s ha p edominan ly d aw on go e nmen bonds as
colla e al, based on he bluep in o he US T easu y ma ke (Gabo 2016b). Repo-
ma ke g ow h was u he ampli ied by he ac ha easu ies could now no any
longe hold ax e enues in a cu en accoun a he cen al bank bu ins ead had o
place hei excess cash wi h banks in epo ansac ions (Gabo 2016b). Howe e ,
his change in he mac o- inancial a chi ec u e soon necessi a ed UMP a e 2008 —
cen al banks esumed buying go e nmen bonds. Thus, akin o Goe he’s so ce e ’s
app en ice, he spi i s ha cen al banks summoned by wi hd awing om go e n-
men bond ma ke s and le ing na ional easu ies be subjec o ma ke discipline
u ned agains hem sho ly a e wa ds, o cing hem o in e ene in ma ke s anew
and hus iola e he ene s o hei neolibe al spi i ual a he s.
Ne e heless, cen al banks upheld he neolibe al pa adigm o cen al bank inde-
pendence and hus ull disc e ion o e hei mone a y policy, including go e nmen
bond pu chases. Fo ins ance, he ECB was eage o emphasise ha ‘ he e is no sys-
ema ic ela ionship be ween go e nmen bond issuance and he amoun o bonds
ha we pu chase in he seconda y ma ke ’, and ha , he e o e, ‘ he disciplina y
unc ion o ma ke s has no been los ’ (Schnabel 2020). This can also be seen by he
ac ha almos all majo cen al banks indica e hei APPs wi h in la ion a ge ing,
no suppo ing iscal policy (Ba eman and Kloos e 2023; Gabo 2021). Fa om
being one among se e al equally anking policy goals, i pe mea es o e all mon-
e a y policy, wi h p ice s abili y as p ima y goal, cen al bank independence as he
op imal ins i u ional a angemen , and sho - e m in e es a e se ing as ope a ional
16
S.Schai e
1 3
a ge — he ‘holy ini y o he in la ion a ge ing pa adigm’ (B aun and Downey
2020). Go e nmen bond APPs add a ou h dimension o his ini y bu do no al e
i subs an ially because hey me ely ex end he ope a ional a ge o long- e m in e -
es a es, while bo h he p ima y goal and he p e e ed ins i u ional a angemen o
mone a y policy emain unchanged (Gabo 2021).
The e o e, UMP does no ma k a adical pa adigm shi in compa ison o i s p e-
cu so and nei he a e u n o iscal dominance no a mone a y inancing egime wi h
subo dina ed cen al banks (Ba eman and Kloos e 2023). Ins ead, i is an in ica e
con inua ion o he neolibe al in la ion a ge ing pa adigm augmen ed by he ealisa-
ion ha cen al banks mus engage in mac o-p uden ial asse pu chases o s abilise
he shadow banking sys em (MMLR), and ha long- e m yields play a c i ical ole
o he ansmission o mone a y policy (APPs): he alleged coo dina ion be ween
mone a y and iscal policy ‘is an op ical illusion ha masks he mac o- inancial
– a he han iscal – easons behind he in e en ion, and ha co-exis s wi h cen al
bank independence and in la ion- a ge ing egimes’ (Gabo 2021, 6). Mac o-d i en
APPs aim o lowe long- e m yields, po en ially aise agg ega e demand, and b ing
in la ion a es up o a ge , no inance iscal de ici s o go e nmen s (BoE 2015).
Hence, he e is conside able eason o doub he plausibili y o iscal dominance
as alleged mo i a ion o APPs. E en i iscal expansion was a concomi an o UMP
ha cen al banks aci ly accep ed, his would ha e been e y much wi hin hei
in e es in an almos de la iona y en i onmen . Howe e , his canno be cha ac e -
ised as iscal dominance in i s Keynesian unde s anding because he pe sis ence o
he neolibe al pa adigm e ec i ely p e en ed go e nmen s om u ilising he iscal
space p o ided by APPs in he a e ma h o he GFC. Ins ead, hey engaged in aus-
e i y policies, which cen al banks — especially he ECB — endo sed i idly a he
ime (D ache 2014).
The eason why he ECB ne e heless did ‘wha e e i akes’ (D aghi 2012)
e e since was a he p e en ing he exace ba ion o a sa e asse sho age h ough a
agmen a ion o colla e al eligibili y in Eu opean epo ma ke s and hus s abilising
he shadow banking sys em and wi h i he o e all mac o- inancial sys em. Rising
go e nmen bond in e es a es can igge a c isis in epo ma ke s ha can quickly
a ec he en i e sys em and back i e on bond ma ke s, as was he case du ing he
Eu o-c isis (Gabo and Ban 2016). This was clea ly illus a ed once mo e by ECB
P esiden Ch is ine Laga de’s s a emen amid he beginning Co id-19 pandemic
ha he ECB ‘is no he e o close sp eads’ (Reu e s 2020) be ween di e en
Eu ozone membe bonds. P omp ly, I alian bonds yield ose sha ply wi hin jus
1day, widening he sp ead o Ge man bunds o almos 3%, causing ou age om he
pandemic-plagued coun y. Laga de pulled back he same day and accep ed ha he
ECB is e y well he e o close sp eads by launching a new €750 billion Pandemic
Eme gency Pu chase P og amme (PEPP) and ex ending exis ing APPs by mo e han
€1 illion in bond pu chases he ollowing week (Claeys 2020).
Fo iscal policy, his poses a p edicamen . Go e nmen s need o ha e ull (ins i-
u ionalised) suppo o hei cen al bank in backing a iscal expansion les bo ow-
ing cos s su ge. E en he Eu opean Commission, once oo an ad oca e o aus e i y,
now acknowledges ha he cu en so e eign bond ma ke a chi ec u e o he EMU
subs an ially limi s he abili y o membe coun ies o employ coun e -cyclical iscal
17
1 3
The con adic ions o uncon en ional mone a y policy asa…
policy and sees his as ‘a majo explana ion behind he se e e den in he eco e y
in he yea s 2011–2013’ (Eu opean Commission 2017, 13). Hence, he ECB con-
ibu ed o subs an ially p olonging he pos -GFC eco e y pe iod (Ba eman and
Kloos e 2023). This cons ain o iscal expansion is c ucial because inc eased cos s
o deb se ice a e nega i ely ela ed o wage sha es, implying ‘a edis ibu ion o
esou ces om wo ke s o non-wages’ (Canale and Lio i 2021, 1). This sugges s a
dilemma o policy make s: Inc easing go e nmen spending can be a powe ul ool
o aise consump ion demand ia mul iplie e ec s, bu such a mo e could lead o
he opposi e ou come unde he in la ion a ge ing egime.
Thus, unde UMP, iscal au ho i ies canno be eassu ed ha iscal expansions
will be suppo ed by cen al banks, who de e minedly cla i y his poin : The ECB
o example opposes any new ins i u ional amewo k o coo dina ion be ween
mone a y and iscal policy, p e e ing absolu e disc e ion in asse pu chase
ope a ions so ha easu ies may u he be disciplined by go e nmen bond ma ke s
(Schnabel 2022). In la ion a ge ing does no p o ide an explici and ins i u ionalised
coo dina ion amewo k be ween bo h a ms o he s a e and hus pe pe ua es he
neolibe al sepa a ion be ween mone a y and iscal policy (Gabo 2021), wi h cen al
bank p esiden s con inuing o uphold he impo ance o ‘ he c edibili y o he iscal
amewo k’ (D aghi 2017). Hence, de ici go e nmen spending as a loo hwa ing
mechanism emains se iously impeded unde he UMP- iscal policy nexus o
cen al bank capi alism, keeping easu y balance con ac ed. Albei cen al banks
a e ge ing inc easingly in ol ed in he inancial sys em, hey do so in a ma ke -
acili a ing a he han disciplining manne (Wullwebe 2020a) — and do hus no
acili a e coun e -cyclical iscal policy o s abilise agg ega e demand.
6 Dis ibu ional consequences o uncon en ional mone a y policy
The hi d eason why UMP as a hwa ing mechanism ailed o es o e economic
g ow h in he pos -c isis decade also conce ns agg ega e demand managemen bu
wi h ega d o consump ion demand — by a he la ges componen in s anda d
na ional accoun ing con en ions. Acco dingly, he dis ibu ional e ec s o UMP a e
key o explain i s ela i e ine ec i eness as a loo hwa ing mechanism.
The pos -c isis pe iod saw an unp eceden ed in la ion o asse p ices. S ock ma -
ke indices such as, e.g. he S&P 500, expe ienced he mos apid inc ease in hei
his o y, seeing alua ions almos quin upling om app oxima ely 1000 poin s in
2016 o mo e han 4800 poin s by 2022. S ock buybacks played an impo an ole in
his unp eceden ed s ock ma ke ally, and ‘[ ]i ually all companies ha unde ook
buybacks in a gi en yea also aised unds om in es o s du ing he same pe iod,
o en h ough a mix o equi y and deb ’ (A amon e 2020, 51). Pa icula ly, co po a e
bonds played a key ole, he issuance o which ose o eco d le els du ing he pas
decade, ampli ied by APPs o co po a e bonds du ing he Co id-19 pandemic (IMF
2021; seeFig.3). These ising co po a e deb le els, in u n, e lec ed in a h ee old
inc ease in holdings by MMFs o US $1.5 illion (Fed 2019; see Fig.4), simila o
ins i u ional in es o s in he Eu o a ea (ECB 2021).
18
S.Schai e
1 3
By keeping shadow bank balance shee s ope a ional and expanding, UMP
played an impo an suppo i e ole in his p ocess. Cohen e al. (2019) show
ha he ECB’s APPs ha e encou aged companies o ca y ou le e aged s ock
buybacks. The ex emely low bo owing cos s in capi al ma ke s a he ime
we e p ecisely pa o he a ionale behind APPs — inducing shadow bank
(ins i u ional in es o ) po olio ebalancing owa ds iskie asse classes such
as co po a e bonds. Indeed, he wo ld’s 700 la ges pension unds inc eased
hei holdings o al e na i e asse s (e.g., hedge unds) o mo e han 25% o hei
US $13 illion agg ega e po olio alue (IMF 2021). Howe e , beyond encou -
aging he di e sion o al eady exis ing money s ocks (i.e. weal h) o specula-
i e pu poses (S ockhamme 2015), he mos impo an channel h ough which
UMP is likely o ha e con ibu ed o eeding he pos -c isis asse p ice bubble
is ia he endogenous c ea ion o money and c edi o he me e pu pose o
inancial in es men (Sgamba i 2019). By buying he key-sa e asse unde pin-
ning epo-ma ke s on a la ge scale (go e nmen bonds), cen al banks did no
only lowe o e all in e es a es alongside he en i e yield cu e bu also d i e-
up colla e al p ices. This uels he p o-cyclicali y o colla e al-based c edi
c ea ion in epo ma ke s, as ‘ epo liabili ies can g ow wi hou bank deposi s
expanding’ (Gabo and Ves e gaa d 2016, 20). Hence, he shadow banking sys-
em acili a es pe pe ual asse alue g ow h ha may be la gely disconnec ed
om unde lying undamen als.
This is illus a ed by he ci cums ance ha he pos -GFC asse p ice in la ion
ook place agains he backd op o an almos s agna ing economy, wi h
0
200
400
600
800
1000
1200
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Jan.21
No h Ame ica Eu ope No h Asia O he
Fig. 3 Global high-yield co po a e bond issuance (in billion US$).Sou ce: IMF 2021, 14
19
1 3
The con adic ions o uncon en ional mone a y policy asa…
‘specula ion-induced asse g ow h sidelining he ole o p oduc i e in es men
[…] in he amassing o weal h’ (Fos e e al. 2021, 9). This is bu a con inua ion
o a long- e m end. O e he pas decades, he s ock o global inancial
asse s has subs an ially exceeded ha o capi al asse s (Gadzinski e al. 2018).
Hence, some p oposed ha he inancial sec o has become ‘an inc easingly
au onomous ealm’ ( an de Zwan 2014, 99) is-á- is he p oduc i e economy.
Howe e , ‘when he goal o c edi issuance is no he inancing o p oduc i e
ac i i ies, bu he c ea ion o inancial commodi ies, he job is likely o be
highly noxious o he economy’ (Bo a e al. 2020, 30). Economic g ow h in
such en economies ends o be unequally dis ibu ed, inc easing weal h and
income inequali y wi h po en ially cu bing e ec s on agg ega e demand (Bo a
e al. 2019). This sugges s ano he impedimen o UMP’s loo unc ion ha
plays ou di e en ly o in es men demand and consump ion demand.
Fi s , UMP’s easy c edi condi ions pe pe ua ed and u he en enched
he imbalance be ween inancial and p oduc i e in es men ha ‘disinclines
p oduc i e ac i i y on he pa o he i ms’ (Topo owski 2000, ii). This
inancialisa ion o co po a ions shi ed companies’ ocus om e aining and
p oduc i ely in es ing p o i s owa ds downsizing p oduc i e capaci ies and
dis ibu ing p o i s o sha eholde s (Lazonick 2014). I also e lec s he ising
powe o sha eholde s — e.g. asse manage s such as BlackRock — o e
Fig. 4 Global co po a e bond holdings o MMFs (in billion US$).Sou ce: Fed 2019, 37
20
S.Schai e
1 3
co po a ions (B aun 2016; Fich ne e al. 2017). Be ween 2010 and 2019, US
i ms dis ibu ed US $4 illion in di idends and US $6 illion in buybacks,
accoun ing o 1.5% o ma ke capi alisa ion pe yea (A amon e 2020, 49).
S ock buybacks ha e also become p ominen because emune a ion o CEOs
is o en ied o s ock op ions, hus incen i ising buybacks mo e han long- e m
ixed capi al in es men (Lazonick 2014). Consequen ly, he las 20yea s saw
ne ou lows o capi al ia public equi y ma ke s, challenging he con en ional
wisdom ha i ms use equi y o inance p oduc i e in es men s in he eal
economy (Fich ne 2020). Hence, such inancial(ised) in es men s do no ully
ansla e in o in es men demand, employmen , and economic g ow h.
Second, u ning o consume demand, s udies ha e shown ha he shadow
banking sys em sys ema ically edis ibu es weal h om he bo om o he op o he
spec um (Bo a e al. 2020): en ie incomes in OECD coun ies ose pe sis en ly as
a sha e o GDP om he 1960s un il he 2000s (Jayade and Eps ein 2019), and he
inc easingly ma ke -based s uc u e o inancial in e media ion has been a key ac o
o inc easing weal h and income inequali y in hese coun ies e e since (Flahe y
2015). The eme gence o he shadow banking sys em i sel can be also unde s ood as
an ou come o inequali y wi h ‘an inc easingly small co e o he global popula ion’
who ‘con ols an inc easingly la ge sha e o incomes and weal h’ (Pozsa 2013,
288). Agains his backd op, he pos -GFC decade saw schola ly deba es whe he
UMP — in pa icula APPs — as such has con ibu ed o inc easing weal h and
income inequali y.
While one camp a gued in a ou o a a he equalising ne ou come in he
USA and he Eu ozone (Bi ens 2015; Ampudia e al. 2018), o he s sugges a
ze o-sum e ec bene i ing middle-class deb o s and c edi o s alike, mainly ia
house bo owe s’ lowe mo gage paymen s is-á- is pensione s ecei ing
lowe in e es on hei in es men s (Engen e al. 2015). Howe e , alling house
p ices in he immedia e a e ma h o he GFC limi ed he abili y o many o
p o i om lowe in e es a es h ough cheape e inancing, as isk p emia ose
due o dep ecia ed colla e al (Be aja e al. 2017). On he o he hand, some also
a gued ha APPs we e ‘modes ly dis-equalizing, despi e ha ing some posi i e
impac s on employmen and mo gage e inancing’ (Mon ecino and Eps ein 2015,
1) because hese equalising e ec s we e swamped by he la ge dis-equalising
e ec s o asse p ice in la ion. Acco dingly, middle- and uppe -income g oups
p o i ed mo e om mo gage e inancing han he poo , while inc eases in bond
and s ock p ices p edominan ly bene i ed he op quin ile. This is because he
uppe 10% o US ci izens own 88% o s ock alue, wi h he op 1% s ill owning
an as onishing 56% (Fos e e al. 2021).
Howe e , one undamen al c i ique o mos o hese s udies is ha jux aposing
pe cen ual changes o household income and weal h a e la ening ou o e en
e e sing he ac ual pic u e. Fo he case o he Eu ozone, Fon an e al. (2019)
poin ou o he allacious cha ac e o inequali y measu emen in ela i e g ow h
e ms, as pe cen ages conceal he absolu e changes in weal h accumula ion (see
Fig.5). Con adic ing he s udy unde aken by Ampudia e al. (2018), hey show
ha he ECB’s APPs ha e subs an ially exace ba ed inequali y, wi h he op quin-
ile o he weal h dis ibu ion gaining mo e han he en i e ou o he quin iles
21
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The con adic ions o uncon en ional mone a y policy asa…
combined. Hence, ins ead o being a ide ha li s all boa s, UMP seems o a he
bene i hose al eady p o i ing om he s a us quo while lea ing ma ginalised
g oups ou . Unsu p isingly, he iches 1% o US Ame icans we e able o cap u e
58% o o al economic g ow h and inc ease hei incomes by 27% is-á- is he
4.3% in income g ow h o he emaining 99% in he pe iod o 2009–2014 (Saez
2020, 3). In conclusion, hese indings sugges ha hese concomi an s o UMP
con ibu ed weaken a he han s eng hen agg ega e demand and hus unde mine
i s loo unc ion.
The s uc u al agg ega e demand gap ha used o be illed by he loo
hwa ing mechanism o deb -led g ow h egimes du ing he FG supe -cycle
(Palley 2009; S ockhamme 2016; Tymoigne 2016) is hus le unadd essed by
he new hwa ing mechanisms o UMP. Despi e cen al banks’ e o s o e i e
secu i isa ion ma ke s, he issuance o , e.g. p i a ely secu i ised p oduc s in
he USA ne e eco e ed o i s p ec isis le els o US $2.5 illion, s anding a
US $0.7 billion (Fed 2021). In he Eu ozone, he si ua ion has been simila :
he Eu opean ma ke o secu i isa ion sh unk by 40% om €1.2 billion o
€0.7 billion be ween 2012 and 2021 (TSI 2023). Hence, wi hou an equi alen
inc ease in agg ega e demand, hese supply-side- ocused mone a y policy
measu es equal ‘pushing on a s ing’ (Claeys 2020, 10).
Adding poli ical economy o he pic u e shows ha inancial dominance a e he
GFC is mo e p onounced in a wo ld o ‘asse manage capi alism’ (B aun 2016)
embedded in and backs opped by ‘cen al bank capi alism’ (Wullwebe 2021b), nu -
u ing egula o y cap u e, elapse, and escape and hus also pe mea ing he genesis
phase o he FG supe -cycle. Hence, i is li le su p ising ha he neolibe al pa a-
digm o in la ion a ge ing in cen al banking pe sis en ly inhibi s any con igu a ion
o UMP o be coo dina ed wi h iscal policy o se e as a loo hwa ing mecha-
nism by enabling agg ega e demand managemen ia iscal expansion. Howe e , in
Fig. 5 Rela i e s. absolu e dis ibu ional e ec s o ECB’s asse pu chases.Sou ce: Fon an e al. 2019
22
S.Schai e
1 3
absence o o he s uc u al shi s in he mac oeconomic o de , his cons i u es he
only likely sou ce o g ow h o any upcoming supe -cycle.
7 Conclusion
This pape aimed o answe why UMP ailed o es o e sus ained economic g ow h
in he pos -c isis decade despi e unp eceden ed balance shee expansions by
d awing on he e olu iona y mac o- inance concep o ins i u ional supe -cycles
and hwa ing mechanisms in pa icula . By linking demand-side economics o
poli ical economy and pu ing he ole o his o ically con ingen ins i u ional
de elopmen o he cen e o analysis, i sugges s ha his heo e ical lens can
enhance he unde s anding o he impac s o UMP on o he mac o- inancial sys em.
I con ibu es o he li e a u e by ex ending he analysis o hwa ing mechanisms
o he cu en genesis phase o he FG supe -cycle and concep ualising UMP as a
no el hwa ing mechanism, se ing a loo and ceiling o he sys em. MMLR a
leas heo e ically enables cen al banks o cu b des abilising p o-cyclical liquidi y
spi als inhe en o shadow banking by implemen ing policy a es in epo ma ke s
(ceiling) while a he same ime pu ing a lowe bound unde he p ice o colla e al
asse s ( loo ). APPs aim a e i ing deb -led g ow h by encou aging ins i u ional
in es o po olio ebalancing owa ds iskie asse classes and ex ending policy a e
implemen a ion owa ds he long end o he yield cu e go e nmen in bond ma ke s
( loo ). Howe e , he aims o p o ec ing colla e al con e ibili y while buying up
colla e al asse s may p o e con adic ious.
Ye , his pape a gued ha he con adic ions o he UMP hwa ing mechanism
go well beyond ha . Fi s , UMP pe pe ua es he s uc u al d i e s o inancial
dominance in socie y by en enching he ole o he shadow banking sys em wi hin
he o e all mac o- inancial sys em. This impac s he e olu ion and e ec i eness
o new hwa ing mechanisms due o powe ela ions being media ed h ough
egula o y cap u e, e asion, and elapse. Second, UMP emains wi hin he neolibe al
mac oeconomic policy pa adigm and hus con ibu es o upholding he impe a i e o
iscal aus e i y. In la ion a ge ing does no p o ide an explici and ins i u ionalised
coo dina ion amewo k be ween mone a y and iscal policy and hus keeps easu y
balance shee s con ac ed. Thi d, UMP nu u ed he exace ba ion o weal h and
income inequali y ia asse p ice in la ion and he eby con ibu ed o sup ess
agg ega e demand. On he one hand, i incen i ises inancial(ised) in es men a he
han p oduc i e in es men while on he o he cu bing consump ion demand due o
weal h edis ibu ion om he bo om o he op.
Hence, while UMP may ha e been an e ec i e ini ial c isis esponse ha em-
po ally s abilised he inancial sys em, he pape sugges s ha i ailed as a sole
hwa ing mechanism o he o e all mac o- inancial sys em because i s con a-
dic ions end o pe pe ua e p io c isis-d i ing powe imbalances and con ibu e
o weaken agg ega e demand and economic g ow h. Thus, his hwa ing mecha-
nism is no able o es o e mac o- inancial s abili y in he long un and needs o
be augmen ed by o he changes in he ins i u ional se up o end he pe sis en c i-
sis o he FG supe -cycle and ini ia e he expansion o a new supe -cycle.
23
1 3
The con adic ions o uncon en ional mone a y policy asa…
Acknowledgemen s The au ho would like o hank Nicolás Aguila, Janina U ban, Jan Fich ne , Joscha
Wullwebe , Ricca do Baioni, Paula Hau e, he pa icipan s o he con e ence o he IPE sec ion o he
Ge man Poli ical Science Associa ion (DVPW) a Wi en/He decke Uni e si y, and wo anonymous e e -
ees o hei help ul commen s and sugges ions.
Au ho con ibu ion I he eby decla e ha I am he sole au ho o his pape , and ha I ha e no used any
sou ces o he han hose lis ed in he bibliog aphy and iden i ied as e e ences. I u he decla e ha I
ha e no submi ed his pape o any o he academic jou nal o e iew.
Funding Open Access unding enabled and o ganized by P ojek DEAL.
Da a a ailabili y N/A.
Decla a ions
E hics app o al N/A.
Compe ing in e es s The au ho decla es no compe ing in e es s.
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