Governments in both countries embarked on fiscal consolidation programs over the past four years, sharply reducing their structural deficits, and, as a consequence, creating headwinds that slowed the recovery. With fiscal drag weighing on growth and with private-sector deleveraging also holding back consumption and investment, monetary policy bore the brunt of supporting the economy.
With policy rates at or approaching zero, central banks of necessity turned to unconventional policy tools such as large-scale asset purchases and enhanced forward guidance about the future path of policy rates. These unconventional tools have, in my view, served to support a recovery in domestic demand and, as a consequence, global economic growth.