Unconventional Monetary Policy

Abstract

Unconventional monetary policy is an umbrella term for policy instruments, which a central bank would only use when its traditional tool-box is either exhausted or has lost its effectiveness in meeting the challenges it faces. This is generally the case, when the conventional tool of short-term interest setting reaches its limits at its natural lower bound at zero. During the GFC, central banks have largely resorted to outright asset purchases of sovereign and corporate bonds, which include covered bonds.