International experiences and domestic opportunities of applying unconventional monetary policy tools
This paper provides an overview of the impact of unconventional central bank instruments, the relevant international experiences and the room for application in Hungary. The use of unconventional instruments may be justified by the existence of financial market friction, turmoil, failure or constraint, when instruments that change the size and/or composition of central bank balance sheets may be more efficient in achieving monetary policy objectives than traditional interest rate policy. Empirical analyses found the unconventional instruments applied in developed countries successful in easing market tensions, increasing market liquidity and reducing yields. Although they proved to be unsuccessful in providing a boost to economic growth, they were able to mitigate the fall in lending and output. Vulnerable emerging countries with a lower credit rating and high external debt have much less room for manoeuvre to apply non-conventional instruments. Even liquidity providing instruments, which are otherwise considered the least risky, may result in exchange rate depreciation and flight of capital during a crisis. The interventions that involve risk taking by the government may add to market concerns about fiscal sustainability. Due to Hungary’s vulnerability, high country risk premium and large foreign exchange exposure, most of the instruments applied in other countries would entail financial stability risks at home. In theory, the sharp reduction in the supply of bank credit could provide sound justification for the use of unconventional central bank instruments in Hungary. It should be noted, however, that insufficient credit supply is mainly attributable to a lack of willingness by banks to lend, which can be less influenced by the Bank, rather than to any lack of capacity to lend. In addition to banks’ high risk aversion, uncertain macroeconomic environment and economic policy measures affecting the banking sector also decreased willingness to lend, which is beyond the authority of the central bank. Therefore, these instruments at most may have a role in preventing a possible future deterioration in banks’ lending capacity from becoming an obstacle to lending in a turbulent period.
|Date of creation:||2013|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.mnb.hu/|
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Christopher J. Neely, 2010. "The large scale asset purchases had large international effects," Working Papers 2010-018, Federal Reserve Bank of St. Louis.
- George Kapetanios & Haroon Mumtaz & Ibrahim Stevens & Konstantinos Theodoridis, 2012.
"Assessing the Economy‐wide Effects of Quantitative Easing,"
Royal Economic Society, vol. 122(564), pages F316-F347, November.
- Kapetanios, George & Mumtaz, Haroon & Stevens, Ibrahim & Theodoridis, Konstantinos, 2012. "Assessing the economy-wide effects of quantitative easing," Bank of England working papers 443, Bank of England.
- Wieland, Volker, 2009.
"Quantitative easing: A rationale and some evidence from Japan,"
CFS Working Paper Series
2009/30, Center for Financial Studies (CFS).
- Volker Wieland, 2010. "Quantitative Easing: A Rationale and Some Evidence from Japan," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 6(1), pages 354 - 366.
- Volker Wieland, 2010. "Quantitative Easing: A Rationale and Some Evidence from Japan," NBER Chapters, in: NBER International Seminar on Macroeconomics 2009, pages 354-366 National Bureau of Economic Research, Inc.
- Volker Wieland, 2009. "Quantitative Easing: A Rationale and Some Evidence from Japan," NBER Working Papers 15565, National Bureau of Economic Research, Inc.
- Tao Wu, 2008. "On the effectiveness of the Federal Reserve's new liquidity facilities," Working Papers 0808, Federal Reserve Bank of Dallas.
- Vladimir Klyuev & Phil De Imus & Krishna Srinivasan, 2009. "Unconventional Choices for Unconventional Times Credit and Quantitative Easing in Advanced Economies," IMF Staff Position Notes 2009/27, International Monetary Fund.
- Luis I. Jacome H. & Tahsin Saadi Sedik & Simon Baker Townsend, 2011. "Can Emerging Market Central Banks Bail Out Banks? A+L4848 Cautionary Tale From Latin America," IMF Working Papers 11/258, International Monetary Fund.
- John C. Williams & John B. Taylor, 2009.
"A Black Swan in the Money Market,"
American Economic Journal: Macroeconomics,
American Economic Association, vol. 1(1), pages 58-83, January.
- Makoto Minegishi & Boris Cournède, 2010. "Monetary Policy Responses to the Crisis and Exit Strategies," OECD Economics Department Working Papers 753, OECD Publishing.
- Johannes C. Stroebel & John B. Taylor, 2009. "Estimated Impact of the Fed's Mortgage-Backed Securities Purchase Program," NBER Working Papers 15626, National Bureau of Economic Research, Inc.
- Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2011. "The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy," NBER Working Papers 17555, National Bureau of Economic Research, Inc.
- Kotaro Ishi & Kenji Fujita & Mark R. Stone, 2011. "Should Unconventional Balance Sheet Policies Be Added to the Central Bank toolkit? a Review of the Experience so Far," IMF Working Papers 11/145, International Monetary Fund.
- Judit Páles & Lóránt Varga, 2008. "Trends in the liquidity of Hungarian financial markets – What does the MNB’s new liquidity index show?," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 3(1), pages 44-51, April.
- Michael A. S. Joyce & Ana Lasaosa & Ibrahim Stevens & Matthew Tong, 2011. "The Financial Market Impact of Quantitative Easing in the United Kingdom," International Journal of Central Banking, International Journal of Central Banking, vol. 7(3), pages 113-161, September.
- Goohoon Kwon & Lavern McFarlane & Wayne Robinson, 2006. "Public Debt, Money Supply, and Inflation: A Cross-Country Study and Its Application to Jamaica," IMF Working Papers 06/121, International Monetary Fund.
When requesting a correction, please mention this item's handle: RePEc:mnb:opaper:2013/100. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Maja Bajcsy)
If references are entirely missing, you can add them using this form.