Before 1970, it was typical across countries for monetary policy to be hostage to fiscal compulsions. But, following the stagflation of the 1970s and the ascendency of monetary policy thereafter, a neat arrangement started to emerge. Governments started becoming fiscally responsible and monetary policy had started getting independent. This arrangement is now unravelling as a result of the crisis.
Unnerved by the scale and sweep of the crisis, governments and central banks around the world responded with an unprecedented show of policy force. Central banks cut policy interest rates and have resorted to injecting massive liquidity in the system through a slew of measures variously called quantitative and credit easing.