Monetary Policies And Monetary Policy

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1. Introduction In 2007, the financial crisis broke out and damaged many countries’ economies across the globe. Central banks around the world took actions to react with a series of monetary policy. Many central banks like European central bank(ECB), Federal Reserve (FED) lowered their interest rate to around zero in 2009. Because of the constraint of Zero Lower Bound(ZLB), the conventional monetary policy(CMP) is no longer efficient. Therefore, the conventional monetary policy instrument that focus on a short run interest rate converting into concentrate on the adjustment of central’s balance sheet, which is the unconventional monetary policy(UMP). ECB and FED have implemented unconventional policy such as purchasing the government debts and lowering the requirement of loan collateral. 2. Unconventional monetary policy of ECB and FED The unconventional monetary policy took by ECB from 2008 to 2012 is shown as below. Table 1: Summary of ECB unconventional monetary policy measures since 2008 Szczerbowicz(2012) classified ECB’s unconventional monetary into six main categories:1)fixed-rate full-allotment procedure (FRFA), 2)three-year refinancing operations (3y LTRO), 3)Collateral easing 4)covered bond purchase programmes (CBPP1 and CBPP2), 5)long-term sovereign bond purchases (Securities Markets Programme, SMP) and 6) short-term sovereign bond purchases(Outright Monetary Transactions, OMT). During the end of 2007, ECB undertook the policy to lower the threshold for eligible assets as lending collaterals and conducted fixed rate and full allotment in all refinancing operation. After then, ECB become more engage in open market operation and one way is to purchase bonds in the financial market. Since September 2008, ... ... middle of paper ... ... Committee on Economic and Monetary Affairs, July 2.Javier Vallés(2004), monetary policy after the great recession, Spanish Economy Papers 3.Praet,P. (2014), Current Issues and Challenges for Central Bank Communication, Speech at the Conference The ECB and its Watchers XV, March, European Central Bank. 4.Sénégas, Marc-Alexandre (2015), Monetary policy in EMU: Objective, strategy and challenges, lecture notes distributed in Topics in University of Birmingham 5.Sylvester C.W. Eijffinger (2012), Crisis Response of Central Banks –the ECB Policy in Comparison to the Policy of the FED and the Bank of England, monetary dialogue with ECB-2012, European Parliament 's Committee on Economic and Monetary Affairs, July 6.Szczerbowicz, Urszula(2012),The ECB Unconventional Monetary Policies: Have They Lowered Market Borrowing Costs for Banks and Governments?, No.73, Working Papers

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