IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

The Benefits and Costs of Highly Expansionary Monetary Policy

Listed author(s):
  • Łukasz Rawdanowicz


  • Romain Bouis


  • Shingo Watanabe


How far to go – and to remain – in the direction of highly expansionary monetary policy hinges on the balance of marginal benefits and costs of additional monetary easing and its expected evolution over time. This paper sketches a framework for assessing this balance and applies it to four OECD economic areas: the euro area, Japan, the United Kingdom and the United States. The effectiveness of further stimulus via quantitative easing or forward guidance in affecting asset prices, interest rates and credit flows will depend on the state of the economy and the functioning of financial markets. Marginal costs could rise due to excessive risk-taking; higher inflation expectations; higher likelihood of ever-greening; and higher risks of financial instability in the exit phase, especially when exit from monetary accommodation is close in time and signs of negative effects are already apparent. The balance of marginal benefits and costs is found to be different across the main OECD areas. In the United States, the case for additional stimulus is weakening, while the opposite is true for the euro area and Japan. In the United Kingdom, the assessment is less clear cut. Les avantages et coûts d'une politique monétaire très expansionniste Jusqu’où aller – et demeurer – dans la direction d’une politique monétaire hautement expansionniste dépend du solde entre les avantages et coûts de l’assouplissement monétaire additionnel et de son évolution attendue dans le temps. Ce document propose une ébauche d’un cadre d’analyse pour évaluer ce solde et l’applique à quatre principales régions économiques de l’OCDE : les États-Unis, la zone euro, le Japon et le Royaume-Uni. L’efficacité d’un stimulus additionnel via l’assouplissement quantitatif ou des indications prospectives pour affecter les prix d’actifs, les taux d’intérêt et les flux de crédit dépendra de l’état de l’économie et du fonctionnement des marchés financiers. Les coûts marginaux pourraient croître en raison d’une prise de risques excessive ; d’anticipations d’inflation plus élevées ; d’une plus grande probabilité de régénération des créances douteuses ; et de risques accrus d’instabilité financière dans la phase de sortie, surtout lorsque la sortie de la politique monétaire accommodante est proche dans le temps et que les signes d’effets négatifs sont déjà apparents. Le solde entre les avantages et coûts est estimé être différent au sein des principales régions de l’OCDE. Aux États-Unis, l’argument en faveur d’un stimulus additionnel s’est affaibli, tandis que l’opposé est vrai pour la zone euro et le Japon. Au Royaume-Uni, le diagnostic est moins clair.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 1082.

in new window

Date of creation: 12 Aug 2013
Handle: RePEc:oec:ecoaaa:1082-en
Contact details of provider: Postal:
2 rue Andre Pascal, 75775 Paris Cedex 16

Phone: 33-(0)-1-45 24 82 00
Fax: 33-(0)-1-45 24 85 00
Web page:

More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:oec:ecoaaa:1082-en. 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: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.