When monetary policymakers hit the zero nominal-interest-rate bound with their policy rate, they have the option to turn to unconventional tools of monetary policy. How do these unconventional tools work, and why are policymakers reluctant to use them except in very difficult circumstances?
Answer to relevant QuestionsHow were you, your family or your friendsaffected by the recent failure of the financial system to function normally during the financial crisis of 2007-2009? Why do you think the financial system has become more globally integrated over time? Can you think of any downside to this increased integration?The government decides to place limits on the interest rates banks can pay their depositors. Seeing that alternative investments pay higher interest rates, depositors withdraw their funds from banks and place them in bonds. ...Suppose there is an unexpected slowdown in the rate of productivity growth in the economy so that forecasters consistently overestimate the growth rate of GDP. If the central bank bases its policy decisions on the consensus ...Do you think the balance-sheet channel of monetary policy would be stronger or weaker if:a. Firms’ balance sheets in general are very healthy?b. Firms have a lot of existing variable-rate debt?
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