The role of unconventional monetary policy

Abstract

In recent years, central banks have used unconventional monetary policies to overcome the limitations imposed by the lower bound. In this work we review these measures, with special attention to QE and forward guidance. These measures are able to provide a greater stimulus than traditional monetary policies in the face of short-term interest rate constraints. This means that, despite the fact that they started out as exceptional and transitory, unconventional monetary policies have become part of central banks’ standard tools to stimulate economic activity, achieve better financial conditions and improve economic welfare.