A Survey of the International Evidence and Lessons Learned About Unconventional Monetary Policies: Is a ‘New Normal’ in Our Future?

Abstract

This study examines the effectiveness of unconventional monetary policies (UMP). It considers whether these policies have been successful and where their effects remain uncertain. We survey both the domestic financial market and macro‐economic effects of UMP in the economies where these policies were introduced and their international spillover effects. The paper considers the impact of a wide range of UMP rather than the effects of specific policy instruments. We also provide a retrospective on the important case of Japan beginning in the late1990s and ask whether the Eurozone's experience with UMP is substantively different given its structure of policymaking. Finally, we ask: if the ‘old normal’ is not in our future, should the ‘new normal’ in monetary policy routinely include what we now refer to as UMP? We conclude that UMP can prevent economic collapse but are not designed to promote stronger long‐term economic growth. Apart from new communication strategies, the use of UMP under normal circumstances does not appear to be a sound monetary policy strategy. Failure to learn this lesson might also enable future policy makers to ask or expect too much from their central banks.

Monetary Policy and Economic Performance Since the Financial Crisis

“…34 For a review of financial and macroeconomic effects in the United States and abroad, see Andrade et al (2016); Lombardi, Siklos, and St. Amand (2018); Kuttner (2018);and Dell'Ariccia, Rabanal, and Sandri (2018), who focus on the effect on yields and bank lending. On the international experience and spillovers, see Clarida (2019b), Martínez-García (2019), and the evidence in Haldane et al (2016), Chen et al (2016), and Martínez-García (2018).…”

Monetary Policy and Economic Performance Since the Financial Crisis

“…First, the struggles of the BOJ and ECB to achieve their mandates illustrate the difficulties in raising inflation once longer-run inflation expectations become entrenched 38 For a review of financial and macroeconomic effects in the United States and abroad, see Andrade and others (2016); Lombardi, Siklos, and St. Amand (2018); Kuttner (2018); and Dell'Ariccia, Rabanal, and Sandri (2018) on the effect on yields and bank lending. On the international experience and spillovers, see Clarida (2019b), Martínez-García (2019), and the evidence in Haldane and others (2016), Chen and others (2016), and Martínez-García (2018).…”

Combination of economic policies: how the perfect storm wrecked the Brazilian economic growth

“…Monetary policy in several countries changed after the Great Recession of 2008–2009. However, it is noteworthy that the aim of what became known as “unconventional monetary policies” was to stabilize the economy and not a strategy to promote long-term economic growth (Lombardi et al 2018 ). 5…”

“… 5 For a review of the literature regarding the use of unconventional monetary policies, see Lombardi et al ( 2018 ). …”