The Central Bankers’ Role and Monetary Policy: A Comparative Case Study of the ECB, Federal Reserve, and State Bank of Pakistan During Crisis Periods

Abstract

This study examines the 'pivotal function' and 'dynamic role' of central banks' in managing the 'economic crises'. For the purpose, comparative examination of the European Central Bank (ECB), the Federal Reserve (Fed), and the State Bank of Pakistan (SBP) in this regard is conducted. Among the list of financial crisis the globe has faced in the 21st century, this article focuses on three key crisis episodes—the Global Financial Crisis of 2008, the COVID-19 pandemic (2020–2021), and the post-pandemic inflationary period (2022–2023). It investigates the procedures these central bankers adapted as tools of 'monetary policy' to maintain macroeconomic stability. Using advanced econometric techniques, including Structural Vector Autoregression (SVAR), Two-Stage Least Squares (2SLS), and event study analysis, the study quantifies the effectiveness of interest rate adjustments, asset purchase programs, and liquidity support mechanisms. The results indicate that the response of Fed Reserve and ECB was swifter, more effective and favored for more coordinated policy shifts because of comparatively steady institutional independence and policy flexibility. In comparison to ECB and Fed, Pakistan's central Bank's (SBP) response was lagging and less broad as constrained by both 'structural' and 'fiscal' limitations. The findings contribute to the expanding discourse on the efficacy of monetary policy in crisis management and provide policy insights for central banks in developing nations.