Excess Reserves, Unconventional Monetary Policy and the Consequences for Fiscal Stimulus Packages

In the aftermath of the 2008 global financial crisis, central banks in developed countries began to resort to unconventional monetary policy measures as interest rates approached zero. Such actions have led to the expansion of the balance sheets of central banks due to the abnormal growth of excess reserves. The article discusses the misconception that such an increase in the monetary base can directly affect the volume of money supply through the action of the money multiplier mechanism and the narrow credit channel of the transmission mechanism. The opinion disputed that non-traditional measures of monetary policy, pro-vided they are adequate, lead to an increase in inflationary risks in the economy. The work focuses on the lack of a close relationship between reserves, the level of lending and the money supply, and attempts made to assess the boundaries of the monetary policy methods under consideration.

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The federal funds market, excess reserves, and unconventional monetary policy

Journal of Economic Dynamics and Control ◽

10.1016/j.jedc.2015.02.011 ◽

2015 ◽

Vol 53 ◽

pp. 225-250 ◽

Cited By ~ 5

Author(s):

Jochen H.F. Güntner

Keyword(s):

Monetary Policy ◽

Unconventional Monetary Policy ◽

Federal Funds ◽

Excess Reserves ◽

Federal Funds Market

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Monetary easing efficacy is decreasing globally

Emerald Expert Briefings ◽

10.1108/oxan-db210881 ◽

2016 ◽

Keyword(s):

Monetary Policy ◽

Excess Capacity ◽

Unconventional Monetary Policy ◽

2008 Financial Crisis ◽

Fiscal Stimulus ◽

Content Type ◽

The 2008 Financial Crisis ◽

Central Bankers ◽

Global Financial System ◽

Global Growth

Subject Efficacy of monetary policy at the zero lower bound. Significance Fiscal packages tempered the aftermath of the 2008 financial crisis while central bankers alleviated threats to the global financial system with unconventional monetary policy, steering economies into calmer waters than might otherwise have been the case. However, today there is no quick restoration of robust and sustainable global growth in prospect, leaving policymakers questioning what succeeds monetary easing. Impacts Further easing may be counterproductive if it is seen as a signal of continuing risk, inducing greater safe-haven flows. High public debts will leave little scope for more fiscal stimulus. Transparent processes for addressing the problems of excess capacity, debt restructuring and corruption are needed to restore confidence.

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