1. Unconventional Monetary Policies in the Euro Area, Japan, and the UK
Giovanni Dell’Ariccia (IMF), Pau Rabanal (IMF) and Damiano Sandri (IMF)
October 17th, 2018
The views expressed in this paper are those of the authors and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

2. Introduction Crisis hit the Euro Area, Japan, and the UK hard
Central banks lowered policy rates close to ZLB and…
… adopted a variety of unconventional monetary policies

3. Objectives, channels, and side effects
Two distinct but connected objectives
Provide stimulus at the ZLB
Restore monetary policy transmission
Transmission channels
Market segmentation (QE)
Signaling / commitment (forward guidance, QE)
Possible side effects
Bank profitability / stability
Risk taking / misallocation of resources
Runaway inflation
Political economy of central bank independence

4. UMP in the Euro Area
2008–2009: provide liquidity support to banking sector
Long-Term Refinancing Operations
2010–2012: backstop sovereign debt crisis and dispel fears of euro reversibility
Security Market Program, €218b
“Whatever it takes” and Outright Monetary Transactions
Sizable and persistent effects on bond yields, positive impact on GDP and inflation
2013 onwards: support growth and inflation
Forward guidance and Asset Purchase Program, €2.4t as of May 2018
NIRP -> downward shift in yield curves

5. UMP in the United Kingdom
2009–2012: support economic recovery
Multiple rounds of QE, £375b
QE1 had considerable effects, lowering yields by bps
QE2/3 seemingly smaller effects, but identification is challenging
: dispel concerns of monetary tightening given above-target inflation
Forward guidance with quantitative target, 7% unemployment
Limited impact on yields, but less uncertainty about future rates
2016: support economic growth in face of Brexit vote
QE4 (£60b government bonds, £10b corporate bonds)

6. UMP in Japan
2010–2012: delayed and weak monetary response to the crisis
Forward guidance and limited asset purchases, ¥30t
BoJ credibility undermined by persistent mild deflation
: much greater stimulus as part of Abenomics
2% inflation target
QQE: open-ended purchases of government bonds, ETFs, real estate trusts
Inflation increased, but below target -> hard to defeat entrenched deflation
2016: renewed efforts to raise inflation
NIRP and yield curve control

7. Key insights
UMP provided stimulus at ZLB and helped restore monetary transmission
Convincing evidence of significant impact on financial conditions
Effect on macro variables (output/inflation) harder to measure
Yet, when impact on LT yields large, difficult to imagine no macro benefits
UMP more effective during financial distress (QE1 in UK, OMT in EA)
But less effective when
deflationary pressures are entrenched (Japan)
central bank perceived as lacking commitment (BoJ pre-Abe, ECB with LTRO)
So far, no major side effects have materialized
but heightened political scrutiny

8. Conclusion UMP should remain part of the monetary toolkit
It can provide crucial relief when ZLB binds
However, UMP is no panacea
Limits once LT yields approach zero / negative rates bounded as well
Other levers: Fiscal/structural reforms, higher inflation target, nominal GDP targeting
Open questions
Decreasing returns from asset purchases? Stock or flow that matters?
Should purchases be restricted to specific asset classes?
When does UMP enter the realm of fiscal policy?