Governments and central banks responded to financial sector difficulties by introducing
a number of substantive and innovative measures to deal with both liquidity and solvency
problems in financial institutions and financial markets. Central banks reduced interest rates
to unprecedented levels to offset the increase in private sector risk premia and to underpin
aggregate demand, and they used nonconventional measures in the form of quantitative
easing and qualitative or credit easing to bring about reductions in risk premia and to
provide liquidity to markets in difficulty. In spite of these efforts, credit conditions remained
tight and aggregate demand and employment in many countries weakened rapidly. There
were negative spillovers from the weakening economies to those economies that had appeared
to be more robust, and increased concern that the global economy might be moving into a
period of deep and prolonged recession (IMF, 2009a).