Unconventional Monetary Policies: A Re-Appraisal

49 Pages Posted: 20 Jul 2016

See all articles by Claudio E. V. Borio

Claudio E. V. Borio

Bank for International Settlements (BIS) - Research and Policy Analysis

Anna Zabai

Bank for International Settlements (BIS)

Date Written: July 2016

Abstract

We explore the effectiveness and balance of benefits and costs of so-called "unconventional" monetary policy measures extensively implemented in the wake of the financial crisis: balance sheet policies (commonly termed "quantitative easing"), forward guidance and negative policy rates. Our objective is to provide the reader with a helpful entry point to the burgeoning empirical literature and with a specific perspective on the complex issues involved. We reach three main conclusions: there is ample evidence that, to varying degrees, these measures have succeeded in influencing financial conditions even though their ultimate impact on output and inflation is harder to pin down; the balance of the benefits and costs is likely to deteriorate over time; and the measures are generally best regarded as exceptional, for use in very specific circumstances. Whether this will turn out to be the case, however, is doubtful at best and depends on more fundamental features of monetary policy frameworks. In the paper, we also provide a critique of prevailing analyses of "helicopter money" and explore in more depth the role of negative nominal interest rates in our fundamentally monetary economies, highlighting some risks.

Keywords: unconventional monetary policies, balance sheet policies, forward guidance, negative interest rates

JEL Classification: E40, E50, E52, E58, E60

Suggested Citation

Borio, Claudio E.V. and Zabai, Anna, Unconventional Monetary Policies: A Re-Appraisal (July 2016). BIS Working Paper No. 570, Available at SSRN: https://ssrn.com/abstract=2811130

Claudio E.V. Borio (Contact Author)

Bank for International Settlements (BIS) - Research and Policy Analysis ( email )

CH-4002 Basel, Basel-Stadt
Switzerland

Anna Zabai

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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