Unconventional monetary policy and the role of central banks

Abstract

Over the last few years, central banks in industrial countries have undertaken a variety of policies that deviated from ordinary monetary policy. Why were these policies used? Did they work? What will be the effect of phasing them out? And what long-term concerns do they raise? Clearly, markets were broken, and there was a need to repair them. Some of these innovative instruments seemed to have worked quite well. But now central banks are struggling to get inflation up into their target bands. Large central bank balance sheets may create needed safe, short-term instruments, but take much liquidity management away from the private sector, while tempting governments to use them for other purposes. Sober thinkers need to examine the experience of the last few years and ask again, what should central banks be asked to do and what ought to be the range of actions they can take?