The Committee on the Global Financial System (CGFS) and the Markets Committee have published two major reports on the implementation and implications of unconventional monetary policy tools (UMPTs) introduced by central banks in response to the financial crisis and its aftermath.
After a decade of experience with UMPTs, and with many tools still in place, the CGFS report Unconventional monetary policy tools: a cross-country analysis summarises the shared understanding of central banks on the tools’ use, effectiveness and side effects.
The report concludes that, on balance, UMPTs helped the central banks that used them address the circumstances presented by the crisis and the ensuing economic downturn. The report identifies side effects, such as disincentives to private sector deleveraging and spillovers to other countries, but does not consider them sufficiently strong to reverse the benefits of UMPTs. The report also discusses whether, and under what circumstances, these tools could be useful in the future.
One key lesson is that the tools are most effective when used together with a broader set of policies, like fiscal and prudential measures. Philip Lowe, Chair of the CGFS and Governor of the Reserve Bank of Australia
In Large central bank balance sheets and market functioning, the Markets Committee provides a systematic cross-country perspective on the effects of large central bank balance sheets on the functioning of bond and money markets. It further looks at the tools central banks used to avert or attenuate side effects from central bank balance sheet expansion on markets and summarises lessons for the future.
The report shows that the expansion, especially in the early phases, had mainly positive effects on market functioning. When liquidity dried up, emergency lending programmes helped ease severe funding market strains, while purchases of bonds with outsize risk premia tended to improve their underlying liquidity.
Negative side effects sometimes arose (for instance due to scarcity effects in bond markets), but did not tighten financial conditions materially, in part because of mitigating actions taken by policymakers. While adverse effects have often been transitory, they can have an enduring impact when policies are in place for extended periods of time.
The report has benefited from the valuable experience derived by central bankers in managing large balance sheets. The lessons learned are an important guide for how to keep any negative impact on market functioning at a minimum. Jacqueline Loh, Chair of the Markets Committee and Deputy Managing Director of the Monetary Authority of Singapore
- Accompanying the reports, the Markets Committee publishes a Compendium of monetary policy frameworks and market operations. The Compendium provides a comprehensive cross-country overview of policy implementation, such as institutional features of policy frameworks, communication of policy, and operational details, of its members into a single and easily accessible document.