The role of monetary policy in the economic recovery following the 2008-2009 global financial crisis with special reference to small states

Abstract

The objective of this thesis is to analyse the role of monetary policy in the economic recovery following the global financial crisis of 2008 and 2009, with special reference to small states. The study is based on responses by senior public officials in 38 small states to a survey carried out by the present author for the purpose of this thesis and on a desk-study utilising published data on 178 countries applied to an econometric model. The survey responses provided valuable insights on the role of monetary policy in small states and indicated that during the recession monetary policy had an important role in steadying many small economies. The regression results showed that both monetary and fiscal measures had a statistically significant effect on the post-recession economic growth (i.e. during 2009 and 2010). The results also indicate that in the case of small states, as a group, monetary measures may have been more important than fiscal measures in mitigating the effects of the global recession. Monetary policy's role in an economy is fundamental in economic governance. However, its effectiveness as a tool of economic stabilisation varies from country to country. It is sometimes argued that the effectiveness of monetary policy in small states can be limited due to their thin markets, weak transmission mechanism and high degree of exposure to external economic shocks. The results of this study indicate otherwise.