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8 - What Have We Learnt about Unconventional Monetary Policy Tools? Lessons from the Global Pandemic

from III - Targets and Instruments

Published online by Cambridge University Press:  14 November 2024

By
Charlotta Groth
Edited by
Sean Holly ,
Michael McMahon ,
Stephen Millard  and
Anna Watson
Sean Holly
Affiliation:
University of Cambridge
Michael McMahon
Affiliation:
University of Oxford
Stephen Millard
Affiliation:
National Institute of Economic and Social Research
Anna Watson
Affiliation:
University of Cambridge
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Summary

With the start of the pandemic in 2020, central banks re-deployed unconventional policy tools used for the Global Financial Crisis but also added new and even less conventional ones. The steps they took followed a textbook description of a risk management approach to monetary policy when operating close to the effective lower bound on interest rates.[1] This involved loosening policy aggressively and working with many different instruments simultaneously to maximise policy impact. Judging from the aftermath, they were successful. They steered the economy through a crisis and avoided a depression. One could argue that the episode has shown that monetary policy can be effective also in a low interest rate environment if central banks are willing and able to deploy multiple measures with scale and speed. This suggests that central banks are well equipped for the future, irrespective of the path of interest rates.

Keywords

Unconventional monetary [policy rulesThe Great financial crisisrisk managementlower bound on interest rates
Type
Chapter
Information
Reflections on Monetary Policy after 25 Years of the MPC , pp. 100 - 106
Publisher: Cambridge University Press
Print publication year: 2024

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References

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