Should Unconventional Monetary Policies Become Conventional?

Dominic Quint and Pau Rabanal

No 2017/085, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; central bank; monetary policy; Unconventional Monetary Policy; Banking; Optimal Rules; UMP rule; goods producer; supply shock; purchases of government bonds; UMP matter; unwinding UMP; government bond purchase; UMP shock; transmission mechanism; UMP reaction; long-term debt; optimal UMP policy; Unconventional monetary policies; Sovereign bonds; Consumption; Corporate bonds; Inflation; Global (search for similar items in EconPapers)
Pages: 44
Date: 2017-03-31
References: Add references at CitEc
Citations: View citations in EconPapers (25)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=44787 (application/pdf)

Related works:
Working Paper: Should Unconventional Monetary Policies Become Conventional? (2017)
Working Paper: Should unconventional monetary policies become conventional? (2017)
Working Paper: Should Unconventional Monetary Policies Become Conventional? (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2017/085

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().