Answer to Question #93629 in Macroeconomics for Musbahu Ibrahim Ahmad

Question

Compare and contrast between convenotional and unconventional Monetary policy

Answer 1

In the pre-crisis period, two monetary policy regimes prevailed - the interest rate policy and the exchange rate policy, which created the necessary conditions for capital and money.

To maintain macroeconomic stability in the context of the financial crisis, the central banks of a number of developed countries turned to unconventional monetary policy measures. These measures include various bond purchase transactions (public and private), large-scale foreign exchange interventions, and direct lending to the central bank of the private sector.

Non-traditional measures are divided into: a) quantitative easing measures (QE), which are usually understood as the purchase of securities of long-term securities; b) credit easing measures (CE) or credit market support measures.

Adding unconventional measures to conventional Central Bank instruments suggests that they should not be used on an ongoing basis, but only in predetermined specific circumstances.