Should Unconventional Monetary Policies Become Conventional
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Author | : Mr.Dominic Quint |
Publisher | : International Monetary Fund |
Total Pages | : 44 |
Release | : 2017-03-31 |
Genre | : Business & Economics |
ISBN | : 147559139X |
The large recession that followed the Global Financial Crisis of 2008-09 triggered unprecedented monetary policy easing around the world. Most central banks in advanced economies deployed new instruments to affect credit conditions and to provide liquidity at a large scale after shortterm policy rates reached their effective lower bound. In this paper, we study if this new set of tools, commonly labeled as unconventional monetary policies (UMP), should still be used when economic conditions and interest rates normalize. In particular, we study the optimality of asset purchase programs by using an estimated non-linear DSGE model with a banking sector and long-term private and public debt for the United States. We find that the benefits of using such UMP in normal times are substantial, equivalent to 1.45 percent of consumption. However, the benefits from using UMP are shock-dependent and mostly arise when the economy is hit by financial shocks. When more traditional business cycle shocks (such as supply and demand shocks) hit the economy, the benefits of using UMP are negligible or zero.
Author | : Dominic Quint |
Publisher | : |
Total Pages | : |
Release | : 2017 |
Genre | : |
ISBN | : 9783957293954 |
The large recession that followed the Global Financial Crisis of 2008-09 triggered unprecedented monetary policy easing around the world. Most central banks in advanced economies deployed new instruments to affect credit conditions and to provide liquidity on a large scale after short-term policy rates had reached their effective lower bound. In this paper, we study if this new set of tools, commonly labeled as unconventional monetary policies (UMP), should continue to be used once economic conditions and interest rates have normalized. In particular, we study the optimality of asset purchase programs by using an estimated non-linear DSGE model with a banking sector and long-term private and public debt for the United States. We find that the benefits of using such UMP in normal times are substantial, equivalent to 1.45 percent of consumption. However, the benefits of using UMP are shock-dependent and mostly arise when the economy is hit by financial shocks. By contrast, when more traditional business cycle shocks (such as supply and demand shocks) hit the economy, the benefits of using UMP are negligible or zero.
Author | : Ulrich Bindseil |
Publisher | : Springer Nature |
Total Pages | : 128 |
Release | : 2021-05-18 |
Genre | : Business & Economics |
ISBN | : 3030708845 |
This open access book gives a concise introduction to the practical implementation of monetary policy by modern central banks. It describes the conventional instruments used in advanced economies and the unconventional instruments that have been widely adopted since the financial crisis of 2007–2008. Illuminating the role of central banks in ensuring financial stability and as last resort lenders, it also offers an overview of the international monetary framework. A flow-of-funds framework is used throughout to capture this essential dimension in a consistent and unifying manner, providing a unique and accessible resource on central banking and monetary policy, and its integration with financial stability. Addressed to professionals as well as bachelors and masters students of economics, this book is suitable for a course on economic policy. Useful prerequisites include at least a general idea of the economic institutions of an economy, and knowledge of macroeconomics and monetary economics, but readers need not be familiar with any specific macroeconomic models.
Author | : Cobus Cornelis Vermeulen |
Publisher | : |
Total Pages | : |
Release | : 2019 |
Genre | : |
ISBN | : |
Following the Global Financial Crisis of 2007 { 2010, central banks around the world were forced into unprecedented policy interventions to stabilise asset markets and prevent the global nancial system from collapsing. Because interest rates around the world were at historical lows, \conventional" interest rate policy was not an option. Central banks, led by the US Federal Reserve, resorted to \unconventional" monetary policies, rst to stabilise markets during the height of the crisis, and then to support the economic recovery thereafter. The distinguishing characteristic of these unconventional policies was that they involved direct intervention by central banks in long-term xed income markets, such as government bonds and agency debt. This thesis considers the theoretical channels through which central bank purchases of long-term securities could impact (i) bond yields, (ii) other domestic asset markets, and (iii) spillovers to foreign countries. The theory is then tested and evaluated against the empirical evidence. Based on the empirical results, a simple closed-economy DSGE model is constructed. The model captures and illustrates the transmission from central bank asset purchase shocks to the aggregate economy. The asset purchase shock is subsequently converted to an endogenous balance sheet rule. Simulations show that combining this unconventional (balance sheet) rule with a conventional (short-term interest rate) rule yields a superior policy mix than under the conventional rule alone. Finally, the closed-economy model is extended to an open-economy framework, within which a similar balance sheet rule is evaluated in the context of international capital ows. Again, the combination of the balance sheet and interest rate policy is found to yield a superior outcome than interest rate policy alone. The contribution of this thesis is twofold. It contributes to the understanding of the impact of central bank interventions in xed income markets on long-term yields, as well as the externalities and spillovers to other asset markets. Furthermore, this thesis develops a robust and versatile framework, which is intuitively easy to grasp, within which various aspects of central bank balance sheet policy could be investigated. This thesis' main conclusion is that unconventional monetary policy could complement conventional policy under normal market conditions, and that unconventional policy need not be restricted to crisis times only.
Author | : Korbinian Stinglhamer |
Publisher | : GRIN Verlag |
Total Pages | : 25 |
Release | : 2017-10-11 |
Genre | : Business & Economics |
ISBN | : 3668546169 |
Seminar paper from the year 2016 in the subject Economics - Finance, grade: 1,0, University of Wisconsin-Madison (Economics), course: The Financial System, language: English, abstract: The paper analyzes the unconventional monetary policies that were implemented by the Federal Reserve Bank, the Bank of England, the European Central Bank, and the Bank of Japan during their post-crisis transitions. Next, potential challenges involved in the exit will be analyzed. During the financial crisis many central banks in the world implemented “unconventional monetary policy” measures, such as balance-sheet policies, forward guidance, and negative interest rates. Once the financial system stabilizes, the difficult process of returning back to conventional monetary policy begins. For this reason, this paper analyzes the unconventional monetary policies during post-crisis transitions and potential challenges involved in the exit. The analysis suggests that a transition from unconventional monetary policies should be accomplished smoothly, without exceeding inflation, harming economic recovery, or destabilizing financial markets. Furthermore, the analysis suggests to make use of forward guidance in order to prepare the market for the exit and to increase its potential speed. However, the optimal exiting policy depends largely on present and future economic conditions of the respective currency region. In order to analyze these conditions and determine the ideal exiting strategy for each central bank, further investigations need to be done.
Author | : Roger E. A. Farmer |
Publisher | : |
Total Pages | : 0 |
Release | : 2012 |
Genre | : Economics |
ISBN | : |
This paper has three parts. Part 1 constructs a classical economic model of inflation, augmented by a complete set of financial markets; I call this the core monetary model. Part 2 develops a series of calibrated examples to illustrate how the core monetary model explains the history of inflation after WWII and Part 3 provides evidence to show that the unconventional monetary policy, followed in the wake of the 2008 financial crisis, was effective in stabilizing inflation expectations. The core monetary model provides a unified framework to explain how an interest rule can be used to control inflation in normal times, and to explain the purpose of unconventional monetary policy when policy attains the zero lower bound. I argue that management of the variation in the composition of the Fed's balance sheet, is an important tool in a central bank's arsenal that can be used to help prevent deflation in the wake of a financial crisis.
Author | : Vasco Cúrdia |
Publisher | : |
Total Pages | : 0 |
Release | : 2009 |
Genre | : Monetary policy |
ISBN | : |
Author | : Mr.Tamim Bayoumi |
Publisher | : International Monetary Fund |
Total Pages | : 49 |
Release | : 2014-04-04 |
Genre | : Business & Economics |
ISBN | : 1475561784 |
The proposed SDN would take stock of the current debate on the shape that monetary policy should take after the crisis. It revisits the pros and cons of expanding the objectives of monetary policy, the merits of turning unconventional policies into conventional ones, how to make monetary policy frameworks more resilient to the risk of being constrained by the zero-lower bound going forward, and the institutional challenges to preserve central bank independence with regards to monetary policy, while allowing adequate government oversight over central banks’ new responsibilities. It will draw policy conclusions where consensus has been reached, and highlight the areas where more work is needed to get more granular policy advice.
Author | : Alexis Stenfors |
Publisher | : Routledge |
Total Pages | : 184 |
Release | : 2020-07-15 |
Genre | : Business & Economics |
ISBN | : 0429627971 |
Since the financial crisis of 2008-09, central bankers around the world have been forced to abandon conventional monetary policy tools in favour of unconventional policies such as quantitative easing, forward guidance, lowering the interest rate paid on bank reserves into negative territory, and pushing up prices of government bonds. Having faced a crisis in its banking sector nearly a decade earlier, Japan was a pioneer in the use of many of these tools. Unconventional Monetary Policy and Financial Stability critically assesses the measures used by Japan and examines what they have meant for the theory and practice of economic policy. The book shows how in practice unconventional monetary policy has worked through its impact on the financial markets. The text aims to generate an understanding of why such measures were introduced and how the Japanese system has subsequently changed regarding aspects such as governance and corporate balance sheets. It provides a comprehensive study of developments in Japanese money markets with the intent to understand the impact of policy on the debt structures that appear to have caused Japan’s deflation. The topics covered range from central bank communication and policymaking to international financial markets and bank balance sheets. This text is of great interest to students and scholars of banking, international finance, financial markets, political economy, and the Japanese economy.
Author | : Mark Carlson |
Publisher | : |
Total Pages | : |
Release | : 2018 |
Genre | : |
ISBN | : |