The consequences of exit from non-conventional monetary policy

Philip Turner

Journal of Financial Perspectives, 2015, vol. 3, issue 2, 43-59

Abstract: This paper examines the financial and macroeconomic consequences of changes in central bank balance sheets. Large-scale purchases of bonds tend to drive down long- term interest rates. But developments in global markets, which shape the world long- term rate, exert some powerful constraints. Exchange rate effects can also be significant. The prospect of divergent balance sheet policies (balance sheet normalization by the Federal Reserve but further large purchases by the European Central Bank (ECB) and the Bank of Japan) is pushing the dollar up. Moving balance sheets toward more normal levels is important in order to preserve policy flexibility for the future but will present central banks with formidable challenges. This task will require cooperation with t reasuries without surrendering monetary policy independence. As central banks pragmatically monitor market resilience, the financial dominance trap is to be avoided.

Keywords: Central Banks; exchange rate effects; financial markets (search for similar items in EconPapers)
JEL-codes: G01 G15 G21 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:jofipe:0072

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