In as recent speech to the Bank of International Settlements, Stephen King, Chief Economist at HSBC, highlighted the following perils associated with excessive reliance on loose monetary policy to stimulate global economic growth.
Low interest rates trigger a hunt for yield, which can destabilise asset markets: similar to to the first point, fund managers get extra fuel to scour the globe for asset returns, with spillover effects on financial markets.
What can governments do in the present scenario? According to King, central bankers need to take a broader view of the economy, rather than looking at inflation and output indicators.
A wider look at the state of the economy, including asset price levels and signs of over leverage in the financial sector, will give a more nuanced read of economic conditions and, possibly, prevent future economic crises.