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  • 8 - What Have We Learnt about Unconventional Monetary Policy Tools? Lessons from the Global Pandemic

  • from III - Targets and Instruments
  • Edited by Sean Holly, University of Cambridge, Michael McMahon, University of Oxford, Stephen Millard, National Institute of Economic and Social Research, Anna Watson, University of Cambridge
  • Book:
    Reflections on Monetary Policy after 25 Years of the MPC
    Published online:
    14 November 2024
    Print publication:
    21 November 2024, pp 100-106

  • Summary

    With the start of the pandemic in 2020, central banks re-deployed unconventional policy tools used for the Global Financial Crisis but also added new and even less conventional ones. The steps they took followed a textbook description of a risk management approach to monetary policy when operating close to the effective lower bound on interest rates.[1] This involved loosening policy aggressively and working with many different instruments simultaneously to maximise policy impact. Judging from the aftermath, they were successful. They steered the economy through a crisis and avoided a depression. One could argue that the episode has shown that monetary policy can be effective also in a low interest rate environment if central banks are willing and able to deploy multiple measures with scale and speed. This suggests that central banks are well equipped for the future, irrespective of the path of interest rates.