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  5. Unconventional Monetary Policies in the Euro Area, Japan, and the United Kingdom

Journal of Economic Perspectives

ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)

Unconventional Monetary Policies in the Euro Area, Japan, and the United Kingdom

  • Giovanni Dell'Ariccia
  • Pau Rabanal
  • Damiano Sandri
Journal of Economic Perspectives
vol. 32, no. 4, Fall 2018
(pp. 147–72)
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Abstract

The global financial crisis hit hard in the euro area, the United Kingdom, and Japan. Real GDP from peak to trough contracted by about 6 percent in the euro area and the United Kingdom and by 9 percent in Japan. In all three cases, central banks cut interest rates aggressively and then, as policy rates approached zero, deployed a variety of untested and unconventional monetary policies. In doing so, they hoped to restore the functioning of financial markets, and also to provide further monetary policy accommodation once the policy rate reached the zero lower bound. In all three jurisdictions, the strategy entailed generous liquidity support for banks and other financial intermediaries and large-scale purchases of public (and in some cases private) assets. As a result, central banks' balance sheets expanded to unprecedented levels. This paper examines the experience with unconventional monetary policies in the euro zone, the United Kingdom, and Japan. The paper starts with a discussion of how quantitative easing, forward guidance, and negative interest rate policies work in theory, and some of their potential side effects. It then reviews the implementation of unconventional monetary policy by the European Central Bank, the Bank of England, and the Bank of Japan, including a narrative of how central banks responded to the crisis and the evidence on the effects of unconventional monetary policy actions.

Citation

Dell'Ariccia, Giovanni, Pau Rabanal, and Damiano Sandri. 2018. "Unconventional Monetary Policies in the Euro Area, Japan, and the United Kingdom." Journal of Economic Perspectives, 32 (4): 147–72. DOI: 10.1257/jep.32.4.147

Additional Materials

JEL Classification

  • E23 Macroeconomics: Production
  • E32 Business Fluctuations; Cycles
  • E43 Interest Rates: Determination, Term Structure, and Effects
  • E44 Financial Markets and the Macroeconomy
  • E52 Monetary Policy
  • G01 Financial Crises
  • H63 National Debt; Debt Management; Sovereign Debt
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