Publication - Unconventional monetary policies: a re-appraisal - by Claudio Borio and Anna Zabai
Copyright: Centralbahnplatz 2
4051 Basel
Switzerland BISBCHBB
Website:www.bis.org
Introduction
They were supposed to be exceptional and temporary – hence the term “unconventional”. They risk becoming standard and permanent, as the boundaries of the unconventional are stretched day after day.
Following the Great Financial Crisis, central banks in the major economies have adopted a whole range of new measures to influence monetary and financial conditions. The measures have gone far beyond the pre-crisis typical mode of operation – controlling a short-term policy rate and moving it within a positive range. To be sure, some of these measures had already been pioneered by the Bank of Japan roughly a decade earlier in the wake of that country’s banking crisis and stubbornly low inflation. But no one had anticipated that they would spread to the rest of the world so quickly and would become so daring.
How effective have these measures been? What broader issues do they raise? These are the two main questions we address in this essay. We do not intend to be comprehensive or provide a definitive analysis – the issues are far too complex and controversial. Rather, our objective is simply to take our cue from the burgeoning literature to provide some reflections on the subject. This should help the reader gain easier access to the rapidly growing body of work and approach it with one more perspective in mind.
What is “conventional” or not is partly in the eye of the beholder. To define our coverage, we take as benchmark pre-crisis implementation frameworks. On that basis, we discuss: (i) using the central bank’s balance sheet to influence financial conditions beyond the short-term rate – “balance sheet policies” (Borio and Disyatat (2010)); (ii) actively managing expectations of the future path of the policy rate to provide extra stimulus when rates have reached their (perceived) lower bound – (interest rate) “forward guidance”; and (iii) setting policy rates below zero in nominal terms – “negative interest rate policy “ (NIRP). We thus exclude from the analysis foreign exchange intervention although, analytically, it is a subset of balance sheet policies (Borio and Disyatat (2010)).1 In addition, we limit our discussion to four central banks – the Federal Reserve, the European Central Bank (ECB), the Bank of Japan and the Bank of England – except when we address NIRP, in which case we briefly touch on the experience of the Swiss National Bank (SNB), Danmarks Nationalbank and the Swedish Riksbank.
Copyright: Centralbahnplatz 2
4051 Basel
Switzerland BISBCHBB
Website:www.bis.org
page source https://www.bis.org/
