Farmer, Roger, Zabczyk, Pawel, (2016), “Why unconventional monetary policy works in theory”, VoxEu, 26 October
Ben Bernanke famously quipped that monetary policy works in practice, but not in theory. This column bridges the gap between practice and theory in assessing how central banks can influence both of them by intervening in asset markets. To the extent that asset market volatility is driven by shifts in beliefs, the central bank should aim to eliminate that volatility by engaging in countercyclical unconventional monetary policy, which would end up reducing the risk premium.
Relevant Posts
- Davies, , Howard, (2016), “Taking Monetary Policy to the People”, Project Syndicate, 25 October
- Dabrowski, Marek, (2016), “Core and periphery: different approaches to unconventional monetary policy “, Bruegel, 24 May