The Effectiveness of Unconventional Monetary Policies

Monetary authorities throughout the world have been responding to the global financial crisis by cutting interest rates to historically low levels and by embarking on a series of unconventional monetary policies, including operations that change the size and composition of their balance sheets and actions that try to guide longer-term interest rate expectations. In this white paper, I review the most important unconventional monetary policies adopted by the Federal Reserve and the European Central Bank, how the transmission mechanism of such policies to the real economy differs from that of conventional interest rate changes, and the relevant macroeconomic consequences. I highlight the uncertain long-term effects of unconventional policies and concerns about potential undesired consequences of these policies.