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The Benefits and Costs of Highly Expansionary Monetary Policy


  • 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.

Suggested Citation

  • Łukasz Rawdanowicz & Romain Bouis & Shingo Watanabe, 2013. "The Benefits and Costs of Highly Expansionary Monetary Policy," OECD Economics Department Working Papers 1082, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:1082-en

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    References listed on IDEAS

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    Cited by:

    1. Jaroslava Durčáková & Ondřej Šíma, 2013. "BRICS: Exchange Rate policy in Context of Internal and External Equilibrium," Český finanční a účetní časopis, University of Economics, Prague, vol. 2013(4), pages 7-29.
    2. Łukasz Rawdanowicz & Romain Bouis & Kei-Ichiro Inaba & Ane Kathrine Christensen, 2014. "Secular Stagnation: Evidence and Implications for Economic Policy," OECD Economics Department Working Papers 1169, OECD Publishing.

    More about this item


    asset price booms; assouplissement quantitatif; boom de prix d’actifs; ever-greening; forward guidance; indications prospectives; monetary policy; politique monétaire; quantitative easing; retombées; régénération; spillovers;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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