OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

The Conduct of Monetary Policy in the Future

Instrument Use

The set of monetary policy instruments has expanded since the start of the global financial crisis in the many OECD economies. Against this background, this paper analyses whether some of the new instruments should be retained in the long term when broader financial stability objectives are likely to feature more prominently as monetary policy goals than prior to the crisis. It also assesses if these new instruments should be used during the transition to this situation and when countries are stuck in persistent stagnation. In the post recovery situation, central banks could ultimately revert to targeting short-term market rates with small balance sheets. This might, however, require changes to monetary policy implementation due to new liquidity requirements. The transition to this situation will be lengthy and will require a mixture of liquidity draining instruments. Alternatively, they could adopt a floor system, which may benefit financial stability. The use of unconventional measures as a substitute for policy rate cuts will no longer be needed unless countries remain in persistent stagnation. Nevertheless, in the post-recovery normal, extended collateral and counterparty eligibility could be sustained, and currency swap lines among central banks could be expanded.


Keywords: quantitative easing, conventional and unconventional monetary policy, corridor and floor interest rate systems, liquidity, forward guidance

F33: International Economics / International Finance / International Monetary Arrangements and Institutions;
E43: Macroeconomics and Monetary Economics / Money and Interest Rates / Interest Rates: Determination, Term Structure, and Effects;
E42: Macroeconomics and Monetary Economics / Money and Interest Rates / Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems;
E52: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit / Monetary Policy